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Zorba Company A U S Based Importer of Specialty Olive Oil Placed

Zorba Company, a U.S.-based importer of olive oil, placed an order with a foreign supplier for 500 cases of olive oil at a price of 100 crowns per case, totaling 50,000 crowns. The olive oil was received on December 1, Year 1 and payment was made on January 31, Year 2. Various journal entries are required to account for the purchase and hedging of foreign exchange risk.

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84 views1 page

Zorba Company A U S Based Importer of Specialty Olive Oil Placed

Zorba Company, a U.S.-based importer of olive oil, placed an order with a foreign supplier for 500 cases of olive oil at a price of 100 crowns per case, totaling 50,000 crowns. The olive oil was received on December 1, Year 1 and payment was made on January 31, Year 2. Various journal entries are required to account for the purchase and hedging of foreign exchange risk.

Uploaded by

Let's Talk With Hassan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Zorba Company a U S based importer of specialty olive oil

placed #3432
Zorba Company, a U.S.-based importer of specialty olive oil, placed an order with a foreign
supplier for 500 cases of olive oil at a price of 100 crowns per case. The total purchase price is
50,000 crowns. Relevant exchange rates are as follows:Zorba Company has an incremental
borrowing rate of 12 percent (1 percent per month) and closes the books and prepares financial
statements on December 31.Required1. Assume the olive oil was received on December 1,
Year 1, and payment was made on January 31, Year 2. There was no attempt to hedge the
exposure to foreign exchange risk. Prepare journal entries to account for this import purchase.2.
Assume the olive oil was received on December 1, Year 1, and payment was made on January
31, Year 2. On December 1, Zorba Company entered into a two-month forward contract to
purchase 50,000 crowns. The forward contract is properly designated as a fair value hedge of a
foreign currency payable. Prepare journal entries to account for the import purchase and foreign
currency forward contract.3. The olive oil was ordered on December 1, Year 1. It was received
and paid for on January 31, Year 2. On December 1, Zorba Company entered into a two-month
forward contract to purchase 50,000 crowns. The forward contract is properly designated as a
fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is
measured through reference to changes in the forward rate. Prepare journal entries to account
for the foreign currency forward contract, firm commitment, and import purchase.4. The olive oil
was received on December 1, Year 1, and payment was made on January 31, Year 2. On
December 1, Zorba Company purchased a two-month call option for 50,000 crowns. The option
was properly designated as a cash flow hedge of a foreign currency payable. Prepare journal
entries to account for the import purchase and foreign currency option.5. The olive oil was
ordered on December 1, Year 1. It was received and paid for on January 31, Year 2. On
December 1, Zorba Company purchased a two-month call option for 50,000 crowns. The option
was properly designated as a fair value hedge of a foreign currency firm commitment. The fair
value of the firm commitment is measured through reference to changes in the spot rate.
Prepare journal entries to account for the foreign currency option, firm commitment, and import
purchase.View Solution:
Zorba Company a U S based importer of specialty olive oil placed

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