Panthers Corp., a U.S. importer of wine, placed an order with an Italian supplier for 1,000,000...

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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 31-Dec-21 $ 1.119 1.122 $ 1.125 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 a) 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. Given 1,000,000 bottles @ Euro 12 per bottle = 12,000,000 Euro 1. No hedge Date Particulars 1-11-2021 Purchase Account payable (Italian supplier) (Euro 12,000,000 @1.119 = 31-12-21 Forex loss or gain Account payable (Italian supplier) (12,000,000 @(1.122-1.119) = $36,000 31-12-21 Profit or loss statement Forex loss or gain Debit $13,428,000 Credit $13,428,000 $36,000 $36,000 $36,000 $36,000 01-01-22 Account payable (Italian supplier) $13,464,000 Forex Loss or gain (12,000,000 x (1,122-1.115) $84,000 Cash/Bank $13,380,000 b) 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. (30 points) Given 1,000,000 bottles @ Euro 12 per bottle = 12,000,000 Euro 1. No hedge Date Particulars Debit Credit 1-11-2021 Purchase $13,428,000 Account payable (Italian supplier) $13,428,000 (Euro 12,000,000 @1.119 = 31-12-21 Forex loss or gain Account payable (Italian supplier) (12,000,000 @(1.122 - 1.119) = $36,000 31-12-21 Profit or loss statement Forex loss or gain 01-01-22 Account payable (Italian supplier) Forex Loss or gain (12,000,000 x (1,122-1.115) Cash/Bank $36,000 $36,000 $36,000 $36,000 $13,464,000 $84,000 $13,380,000 c) How would you change your answer in b) if Panthers designates the forward contract as fair value hedge of a foreign currency payable? Prepare the journal entries to account for the import purchase and foreign currency forward contract. 2.Hedge Hedge item = Account payable = Euro 12,000,000 Hedge instrument = Forward contract To buy 12 million after 3 months Date Particulars Debit Credit 1-11-2021 Purchase Account payable (Italian supplier) (Hedge item recorded) No entry for hedge item because no premium has been paid 30-11-21 Profit and loss (income summary) Cash flow hedge reserve 12,000,0000 x (1.125-1.119) x 1/3 31-12-21 Forex loss or gain Account payable (Italian Supplier) (12,000,000 x (1.122-1.119)= $36,000 Cash flow hedge reserve Fore loss or gain $13,428,000 $13,428,000 $24,000 $24,000 $36,000 $36,000 $36,000 Profit and loss (income summary) $24,000 Cash flow hedge reserve (Amortized of actual loss) $36,000 $24,000 d) Summarize the difference in income under the three alternative scenarios. 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 31-Dec-21 $ 1.119 1.122 $ 1.125 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 a) 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. Given 1,000,000 bottles @ Euro 12 per bottle = 12,000,000 Euro 1. No hedge Date Particulars 1-11-2021 Purchase Account payable (Italian supplier) (Euro 12,000,000 @1.119 = 31-12-21 Forex loss or gain Account payable (Italian supplier) (12,000,000 @(1.122-1.119) = $36,000 31-12-21 Profit or loss statement Forex loss or gain Debit $13,428,000 Credit $13,428,000 $36,000 $36,000 $36,000 $36,000 01-01-22 Account payable (Italian supplier) $13,464,000 Forex Loss or gain (12,000,000 x (1,122-1.115) $84,000 Cash/Bank $13,380,000 b) 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. (30 points) Given 1,000,000 bottles @ Euro 12 per bottle = 12,000,000 Euro 1. No hedge Date Particulars Debit Credit 1-11-2021 Purchase $13,428,000 Account payable (Italian supplier) $13,428,000 (Euro 12,000,000 @1.119 = 31-12-21 Forex loss or gain Account payable (Italian supplier) (12,000,000 @(1.122 - 1.119) = $36,000 31-12-21 Profit or loss statement Forex loss or gain 01-01-22 Account payable (Italian supplier) Forex Loss or gain (12,000,000 x (1,122-1.115) Cash/Bank $36,000 $36,000 $36,000 $36,000 $13,464,000 $84,000 $13,380,000 c) How would you change your answer in b) if Panthers designates the forward contract as fair value hedge of a foreign currency payable? Prepare the journal entries to account for the import purchase and foreign currency forward contract. 2.Hedge Hedge item = Account payable = Euro 12,000,000 Hedge instrument = Forward contract To buy 12 million after 3 months Date Particulars Debit Credit 1-11-2021 Purchase Account payable (Italian supplier) (Hedge item recorded) No entry for hedge item because no premium has been paid 30-11-21 Profit and loss (income summary) Cash flow hedge reserve 12,000,0000 x (1.125-1.119) x 1/3 31-12-21 Forex loss or gain Account payable (Italian Supplier) (12,000,000 x (1.122-1.119)= $36,000 Cash flow hedge reserve Fore loss or gain $13,428,000 $13,428,000 $24,000 $24,000 $36,000 $36,000 $36,000 Profit and loss (income summary) $24,000 Cash flow hedge reserve (Amortized of actual loss) $36,000 $24,000 d) Summarize the difference in income under the three alternative scenarios.