Prepare journal entries to account for this import purchase

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Question - Panthers Corp., a U.S. importer of wine, placed an order with an Italian supplier for 1,000,000 bottles of wine, at a price of Euro 12 per bottle. Relevant exchange rates are as follows:

Date

Spot Rate

Forward Rate (to January 31, 2022)

1-Nov-21

$1.119

$1.125

31-Dec-21

1.122

1.130

31-Jan-22

1.115

1.115

Panthers has an incremental borrowing rate of 12 percent (1 percent per month) and prepares the financial statements on December 31.

Required -

1. Assume the wine was received on November 1, 2021, and payment was made on January 31, 2021. There was no attempt to hedge the exposure to foreign exchange risk. Prepare the journal entries to account for this import purchase.

2. Assume the wine was received on November 1, 2021, and payment was made on January 31, 2022. On November 1, Panthers entered into a three-month forward contract to purchase Euro 12 million. The forward contract is properly designated as a cash flow hedge of a foreign currency payable. Prepare the journal entries to account for the import purchase and foreign currency forward contract.

Reference no: EM133131570

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