Scenario

You are a senior accountant for Acme Corporation in the United States. At the start of the fiscal year, your company (parent) invested in a new company (subsidiary), called Coyote, and obtained 100% control of the foreign-based company. Goodwill was recorded as part of the transaction. The subsidiary uses the euro as its functional currency, but the financial information has already been converted into the US dollar. Acme Corporation has a controlling financial interest. The subsidiary continued to operate on its own, as it bought and sold equipment, merchandise, and land during the year. You are consolidating the financial statements of both companies and filling out the consolidation workbook.

Acme Corporation, a U.S.-based importer of beer and wine, purchased 1,000 cases of Oktoberfest-style beer from Coyote for 50,000 euros before purchasing the company. Relevant US dollar exchange rates for the euro are as follows:

Date	Spot Rate	Forward Rate to October 15	Call Option Premium for October 15 (strike price $1.10)
August 15	$1.10	$1.16	$0.05
September 30	1.15	1.19	0.06
October 15	1.18	1.18 (spot)	N/A

1. Explain concepts related to foreign currency, exchange rates, and exchange risk. Consider the following:
   1. Account for foreign currency borrowings.
   2. Identify the basic concepts of hedge accounting.