Vino Veritas Company, a U.S.-based importer of wines and spirits, placed an order with a French supplier for 1,700 cases of wine at a price of 270 euros per case. The total purchase price is 459,000 euros. Relevant exchange rates for the euro are as follows:

Vino Veritas Company has an incremental borrowing rate of 12 percent (1 percent per month) and closes the books and prepares financial statements at September 30.

D. The wine arrived on September 15, and the company made payment on October 31. On September 15, Vino Veritas purchased a 45-day call option for 459,000 euros. It properly designated the option as a cash flow hedge of a foreign currency payable. Prepare journal entries to account for the import purchase and foreign currency option.

1. record the purchase of wine from the french supplier 7. record the entry for changes in the exchange rate

2. record purchase of foreign currency option as an asset 8. record entry to adjust the fair value of the option

3. record the entry for changes in the exchange rate 9. record the gain or loss on the option

4.record entry to adjust for the fair value of the option 10. record option expense

5.record the gain or loss on the option 11. record settlement of forward contract

6.record option expense 12. record payment made to foreign supplier

E. The company ordered the wine on September 15. It arrived on October 31, and the company made payment on that date. On September 15, Vino Veritas purchased a 45-day call option for 459,000 euros. It properly designated the option as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the spot rate. Prepare journal entries to account for the foreign currency option, firm commitment, and import purchase.

1. record purchase of foreign currency option as an asset 5. record gain or loss on firm commitment

2. record gain or loss on foreign currency option 6. record settlement of forward contract

3. record gain or loss on firm commitment 7. record the receipt of goods and payment made

4. record gain or loss on foreign currency option 8. record entry to close the firm commitment

ACCOUNT TITLES

no journal entry required

accounts payable (euro)

accounts receivable (euro)

AOCI

adjustment to net income

cash

discount expense

equipment

firm commitment

foreign currency (euro)

foreign currency option

foreign exchange gain

foreign exchange loss

forward contract

gain on firm commitment

gain on foreign contract

gain on foreign currency option

gain on forward contract

interest expense

inventory

loss on firm commitment

loss on foreign contract

loss on foreign currency option

loss on forward contract

option expense

sales

Vino Veritas Company, a U.S.-based importer of wines and spirits, placed an order with a French supplier for 1,900 cases of wine at a price of 290 euros per case. The total purchase price is 551,000 euros. Relevant exchange rates for the euro are as follows:

Vino Veritas Company has an incremental borrowing rate of 12 percent (1 percent per month) and closes the books and prepares financial statements at September 30.

1. Assume that the wine arrived on September 15, and the company made payment on October 31. There was no attempt to hedge the exposure to foreign exchange risk. Prepare journal entries to account for this import purchase.

2. Assume that the wine arrived on September 15, and the company made payment on October 31. On September 15, Vino Veritas entered into a 45-day forward contract to purchase 551,000 euros. It properly designated the forward contract 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. Vino Veritas ordered the wine on September 15. The wine arrived and the company paid for it on October 31. On September 15, Vino Veritas entered into a 45-day forward contract to purchase 551,000 euros. The company properly designated the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate. Prepare journal entries to account for the foreign currency forward contract, firm commitment, and import purchase.

4. The wine arrived on September 15, and the company made payment on October 31. On September 15, Vino Veritas purchased a 45-day call option for 551,000 euros. It properly designated the option 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 company ordered the wine on September 15. It arrived on October 31, and the company made payment on that date. On September 15, Vino Veritas purchased a 45-day call option for 551,000 euros. It properly designated the option as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the spot rate. Prepare journal entries to account for the foreign currency option, firm commitment, and import purchase.

1. Raton is a U.S. Company that has net inflows of 80 million Swiss francs and net outflows of 60 million British pounds. The present direct exchange rate of the Swiss franc is $1.05/1Swiss franc while the present direct exchange rate of the pound is $1.31. Raton has not hedged these positions. The Swiss franc and British pound are highly correlated in their movements against the dollar. Explain whether Raton will be favorably or adversely affected if the dollar weakens against foreign currencies over time.

The Pandora Company, a U.S.-based manufacturer of furniture and appliances that offshores all of
its manufacturing operations to Asia, has distribution centers at various locations on the East Coast
near ports where their items are imported on container ships. In many cases, their appliances and
furniture arrive partially assembled, and they complete the assembly at their distribution centers
before sending the finished products to retailers. For example, appliance motors, electric controls,
housings, and furniture pieces might arrive from different Asian manufacturers in separate
containers. Recently, the company began exporting its products to various locations in Europe,
and demand steadily increased. As a result, the company determined that shipping items to the
United States, assembling the products, and then turning around and shipping them to Europe was
inefficient and not cost- effective. The company now plans to open three new distribution centers
near ports in Europe, so that it will ship the items from Asian ports to its distribution centers at the
European ports, offload some of the items for final product assembly, and then ship the partially
filled containers on to its U.S. distribution centers. The table 1.1 shows the seven possible
distribution center locations near container ports in Europe and their container capacities; the
container shipments from each of its Asian ports; and the container shipping cost from each of its
Asian ports to each possible distribution center location. The table 1.2 shows the demand from
each of the U.S. ports and the cost for container shipments from each of the possible distribution
center locations to each of the U.S. ports.
Determine the three distribution center locations in Europe that Pandora should select, and the
shipments from each of the Asian ports to these selected distribution centers, and from the
European distribution centers to the U.S. ports that will result in the lowest overall cost for the 1st
year of operations. You are expected to show a) the minimizinga) the minimizing equation, b) all the supply, demand
and any other required constraint equations and c) the minimum overall costs. You are also
Hits
(1,000s)
Orders
(1,000s)
Hits
(1,000s)
Orders
(1,000s)
36.7 9.1 48.3 9.3
38.5 6.2 43.5 6.2
35.1 9.0 52.6 10.0
24.5 5.7 54.2 8.7
27.9 6.2 38.5 5.1
31.4 4.8 28.9 4.4
29.4 5.1 26.4 5.2
25.5 6.0 39.4 6.0
52.3 10.8 44.3 8.4
35.2 7.5 46.3 7.9
Page 5 of 8
expected to show the tables that you have developed in Excel in order to use the Solver Add-In to
compute the solution to the problem.
Table 1.1 (Costs, Capacity and Supply)
Table 1.2 (Costs and Demand)
…….............. END ………………
Proposed Distribution Center
Costs Rotterdam (k) Hamburg (l)Antwerp (m) Bremen (n) Valencia (o) Lisbon (p) Le Havre (q) Supply
Center Cost 16,725,000 19,351,000 13,766,000 15,463,000 12,542,000 13,811,000 22,365,000
Asian Ports
Hong Kong (a) 3,466 3,560 3,125 3,345 3,060 3,120 3,658 235
Shanghai (b) 3,190 3,020 3,278 3,269 2,987 2,864 3,725 170
Busan (c) 2,815 2,700 2,890 3,005 2,465 2,321 3,145 165
Mumbai (d) 2,412 2,560 2,515 2,875 2,325 2,133 2,758 325
Kaoshiung (e) 2,600 2,800 2,735 2,755 2,473 2,410 2,925 405
Capacity 565 485 520 490 310 410 605
Proposed US Port
Dist. Cent New York (u) Savannah (v) Miami (w)N Orleans (x)
Rotterdam (k) 2,045 1,875 1,675 2,320
Hamburg (l) 2,875 2,130 1,856 2,415
Antwerp (m) 2,415 2,056 1,956 2,228
Bremen (n) 2,225 1,875 2,075 2,652
Valencia (o) 1,865 1,725 1,548 1,815
Lisbon (p) 1,750 1,555 1,420 1,475
Le Harve (q) 3,056 2,280 2,065 2,425
Demand 440 305 190 365a) the minimizing equation, b) all the supply, demand
and any other required constraint equations and c) the minimum overall costs. You are also
Hits
(1,000s)
Orders
(1,000s)
Hits
(1,000s)
Orders
(1,000s)
36.7 9.1 48.3 9.3
38.5 6.2 43.5 6.2
35.1 9.0 52.6 10.0
24.5 5.7 54.2 8.7
27.9 6.2 38.5 5.1
31.4 4.8 28.9 4.4
29.4 5.1 26.4 5.2
25.5 6.0 39.4 6.0
52.3 10.8 44.3 8.4
35.2 7.5 46.3 7.9
Page 5 of 8
expected to show the tables that you have developed in Excel in order to use the Solver Add-In to
compute the solution to the problem.
Table 1.1 (Costs, Capacity and Supply)
Table 1.2 (Costs and Demand)
…….............. END ………………
Proposed Distribution Center
Costs Rotterdam (k) Hamburg (l)Antwerp (m) Bremen (n) Valencia (o) Lisbon (p) Le Havre (q) Supply
Center Cost 16,725,000 19,351,000 13,766,000 15,463,000 12,542,000 13,811,000 22,365,000
Asian Ports
Hong Kong (a) 3,466 3,560 3,125 3,345 3,060 3,120 3,658 235
Shanghai (b) 3,190 3,020 3,278 3,269 2,987 2,864 3,725 170
Busan (c) 2,815 2,700 2,890 3,005 2,465 2,321 3,145 165
Mumbai (d) 2,412 2,560 2,515 2,875 2,325 2,133 2,758 325
Kaoshiung (e) 2,600 2,800 2,735 2,755 2,473 2,410 2,925 405
Capacity 565 485 520 490 310 410 605
Proposed US Port
Dist. Cent New York (u) Savannah (v) Miami (w)N Orleans (x)
Rotterdam (k) 2,045 1,875 1,675 2,320
Hamburg (l) 2,875 2,130 1,856 2,415
Antwerp (m) 2,415 2,056 1,956 2,228
Bremen (n) 2,225 1,875 2,075 2,652
Valencia (o) 1,865 1,725 1,548 1,815
Lisbon (p) 1,750 1,555 1,420 1,475
Le Harve (q) 3,056 2,280 2,065 2,425
Demand 440 305 190 365a) the minimizing equation, b) all the supply, demand
and any other required constraint equations and c) the minimum overall costs. You are also
Hits
(1,000s)
Orders
(1,000s)
Hits
(1,000s)
Orders
(1,000s)
36.7 9.1 48.3 9.3
38.5 6.2 43.5 6.2
35.1 9.0 52.6 10.0
24.5 5.7 54.2 8.7
27.9 6.2 38.5 5.1
31.4 4.8 28.9 4.4
29.4 5.1 26.4 5.2
25.5 6.0 39.4 6.0
52.3 10.8 44.3 8.4
35.2 7.5 46.3 7.9
Page 5 of 8
expected to show the tables that you have developed in Excel in order to use the Solver Add-In to
compute the solution to the problem.
Table 1.1 (Costs, Capacity and Supply)
Table 1.2 (Costs and Demand)
…….............. END ………………
Proposed Distribution Center
Costs Rotterdam (k) Hamburg (l)Antwerp (m) Bremen (n) Valencia (o) Lisbon (p) Le Havre (q) Supply
Center Cost 16,725,000 19,351,000 13,766,000 15,463,000 12,542,000 13,811,000 22,365,000
Asian Ports
Hong Kong (a) 3,466 3,560 3,125 3,345 3,060 3,120 3,658 235
Shanghai (b) 3,190 3,020 3,278 3,269 2,987 2,864 3,725 170
Busan (c) 2,815 2,700 2,890 3,005 2,465 2,321 3,145 165
Mumbai (d) 2,412 2,560 2,515 2,875 2,325 2,133 2,758 325
Kaoshiung (e) 2,600 2,800 2,735 2,755 2,473 2,410 2,925 405
Capacity 565 485 520 490 310 410 605
Proposed US Port
Dist. Cent New York (u) Savannah (v) Miami (w)N Orleans (x)
Rotterdam (k) 2,045 1,875 1,675 2,320
Hamburg (l) 2,875 2,130 1,856 2,415
Antwerp (m) 2,415 2,056 1,956 2,228
Bremen (n) 2,225 1,875 2,075 2,652
Valencia (o) 1,865 1,725 1,548 1,815
Lisbon (p) 1,750 1,555 1,420 1,475
Le Harve (q) 3,056 2,280 2,065 2,425
Demand 440 305 190 365a) the minimizing equation, b) all the supply, demand
and any other required constraint equations and c) the minimum overall costs. You are also
Hits
(1,000s)
Orders
(1,000s)
Hits
(1,000s)
Orders
(1,000s)
36.7 9.1 48.3 9.3
38.5 6.2 43.5 6.2
35.1 9.0 52.6 10.0
24.5 5.7 54.2 8.7
27.9 6.2 38.5 5.1
31.4 4.8 28.9 4.4
29.4 5.1 26.4 5.2
25.5 6.0 39.4 6.0
52.3 10.8 44.3 8.4
35.2 7.5 46.3 7.9
Page 5 of 8
expected to show the tables that you have developed in Excel in order to use the Solver Add-In to
compute the solution to the problem.
Table 1.1 (Costs, Capacity and Supply)
Table 1.2 (Costs and Demand)
…….............. END ………………
Proposed Distribution Center
Costs Rotterdam (k) Hamburg (l)Antwerp (m) Bremen (n) Valencia (o) Lisbon (p) Le Havre (q) Supply
Center Cost 16,725,000 19,351,000 13,766,000 15,463,000 12,542,000 13,811,000 22,365,000
Asian Ports
Hong Kong (a) 3,466 3,560 3,125 3,345 3,060 3,120 3,658 235
Shanghai (b) 3,190 3,020 3,278 3,269 2,987 2,864 3,725 170
Busan (c) 2,815 2,700 2,890 3,005 2,465 2,321 3,145 165
Mumbai (d) 2,412 2,560 2,515 2,875 2,325 2,133 2,758 325
Kaoshiung (e) 2,600 2,800 2,735 2,755 2,473 2,410 2,925 405
Capacity 565 485 520 490 310 410 605
Proposed US Port
Dist. Cent New York (u) Savannah (v) Miami (w)N Orleans (x)
Rotterdam (k) 2,045 1,875 1,675 2,320
Hamburg (l) 2,875 2,130 1,856 2,415
Antwerp (m) 2,415 2,056 1,956 2,228
Bremen (n) 2,225 1,875 2,075 2,652
Valencia (o) 1,865 1,725 1,548 1,815
Lisbon (p) 1,750 1,555 1,420 1,475
Le Harve (q) 3,056 2,280 2,065 2,425
Demand 440 305 190 365a) the minimizing equation, b) all the supply, demand
and any other required constraint equations and c) the minimum overall costs. You are also
Hits
(1,000s)
Orders
(1,000s)
Hits
(1,000s)
Orders
(1,000s)
36.7 9.1 48.3 9.3
38.5 6.2 43.5 6.2
35.1 9.0 52.6 10.0
24.5 5.7 54.2 8.7
27.9 6.2 38.5 5.1
31.4 4.8 28.9 4.4
29.4 5.1 26.4 5.2
25.5 6.0 39.4 6.0
52.3 10.8 44.3 8.4
35.2 7.5 46.3 7.9
Page 5 of 8
expected to show the tables that you have developed in Excel in order to use the Solver Add-In to
compute the solution to the problem.
Table 1.1 (Costs, Capacity and Supply)
Table 1.2 (Costs and Demand)
…….............. END ………………
Proposed Distribution Center
Costs Rotterdam (k) Hamburg (l)Antwerp (m) Bremen (n) Valencia (o) Lisbon (p) Le Havre (q) Supply
Center Cost 16,725,000 19,351,000 13,766,000 15,463,000 12,542,000 13,811,000 22,365,000
Asian Ports
Hong Kong (a) 3,466 3,560 3,125 3,345 3,060 3,120 3,658 235
Shanghai (b) 3,190 3,020 3,278 3,269 2,987 2,864 3,725 170
Busan (c) 2,815 2,700 2,890 3,005 2,465 2,321 3,145 165
Mumbai (d) 2,412 2,560 2,515 2,875 2,325 2,133 2,758 325
Kaoshiung (e) 2,600 2,800 2,735 2,755 2,473 2,410 2,925 405
Capacity 565 485 520 490 310 410 605
Proposed US Port
Dist. Cent New York (u) Savannah (v) Miami (w)N Orleans (x)
Rotterdam (k) 2,045 1,875 1,675 2,320
Hamburg (l) 2,875 2,130 1,856 2,415
Antwerp (m) 2,415 2,056 1,956 2,228
Bremen (n) 2,225 1,875 2,075 2,652
Valencia (o) 1,865 1,725 1,548 1,815
Lisbon (p) 1,750 1,555 1,420 1,475
Le Harve (q) 3,056 2,280 2,065 2,425
Demand 440 305 190 365

Jones Company is a U.S. firm preparing its financial plan for the upcoming year. It has no foreign subsidiaries, but the majority of its sales are from exports to Australia, Canada, Argentina and Taiwan. Estimated foreign cash inflows to be received from exports and foreign cash outflows to be paid for imports over the next year are shown below: Currency Total Inflow Total Outflow Australia dollars (A$) A$33,000,000 A$3,000,000 Canada dollars (C$) C$6,000,000 C$2,000,000 Argentina pesos (AP) AP12,000,000 AP11,000,000 Taiwan dollars (T$) T$5,000,000 T$9,000,000 Today’s spot rates and one-year forward rates in US$ are as follows: Currency Spot Rate One-Year Forward Rate A$ $ .91 $ .94 C$ .61 .60 AP .19 .16 T$ .66 .65 2. The current spot rate is used by Jones as a forecast of the future spot rate one year from now. The C$, AP, and T$ are expected to move in tandem with the U.S. dollar during the upcoming year. The A$’s movements are expected to be independent of the movements of the other currencies. As exchange rate movements are difficult to predict, the estimated net dollar cash flows per currency may differ from the estimates. Could the exchange rate movements from whatever exchange rate movements do occur offset each other? Explain. Be specific.

Delta Corporation's capital structure consists of 20,000 common shares at December 31. At December 31, 2020 an analysis of the accounts and discussions with company officials revealed the following information:

       Sales.................................................................................................        $1,300,000

       Inventory, January 1, 2020..............................................................        150,000

       Purchases.........................................................................................        728,000

       Purchase discounts...........................................................................        18,000

       Inventory, December 31, 2020........................................................        130,000

       Tornado loss (net after $18,000 tax) ..............................................        42,000

       Selling expenses..............................................................................        148,000

       Cash.................................................................................................        60,000

       Accounts receivable........................................................................        90,000

       Common shares...............................................................................        200,000

       Accumulated depreciation...............................................................        180,000

       Dividend revenue............................................................................. 22,000

       Unearned service revenue................................................................        4,400

       Accrued interest payable.................................................................        1,000

       Land.................................................................................................        370,000

       Patents..............................................................................................        100,000

       Retained earnings, January 1, 2020.................................................        350,000

       Interest expense...............................................................................        15,000

       Prior years cumulative effect of change from straight-line to accelerated

       depreciation (net after $15,000 tax)..................................................... 45,000

       General and administrative expenses..............................................        172,000

       Dividends declared..........................................................................        52,750

       Allowance for doubtful accounts.....................................................        5,000

       Notes payable (maturity July 1, 2021).............................................        200,000

       Machinery and equipment...............................................................        450,000

       Materials and supplies inventory.......................................................        40,000

       Accounts payable............................................................................        60,000

Unless indicated otherwise, you may assume a 25% income tax rate.

Required:

a)    Prepare, in good form, a multiple-step income statement

b)    Prepare, in good form, a retained earnings statement.

Martinez Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $38,300 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.

Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.)