Problem (total 100 points

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 1.115Panthers 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 madeon 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.
(20 points)
b)
Assume the wine was received on November 1, 2021, and payment was madeon 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)
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.
(30 points).d)
Summarize the difference in income under the three alternative scenarios. (20
points).