Exam 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2021: The appropriate exchange rates during 2021 were as follows: What amount will Coyote Corp. report in its 2021 balance sheet for Accounts receivable?

On April 1, 2020, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2021. The dollar value of the loan was as follows: How much foreign exchange gain or loss should be included in Shannon's 2021 income statement?

On December 1, 2021, King Co. sold inventory to a customer in a foreign country. King agreed to accept 96,000 local currency units (LCU) in full payment for this inventory. Payment was to be made on February 1, 2022. On the date of sale, King entered into a forward exchange contract wherein 96,000 LCU would be delivered to a currency broker in two months. The two-month forward exchange rate on that date was 1 LCU = $0.30. Any contract discount or premium is amortized using the straight-line method. The spot rates and forward rates on various dates were as follows: The company's borrowing rate is 12%. The present value factor for one month is 0.9901.(A.) Assume this hedge is designated as a cash flow hedge. Prepare the journal entries relating to the transaction and the forward contract.(B.) Compute the effect on 2021 net income.(C.) Compute the effect on 2022 net income.

On April 1, 2020, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2021. The dollar value of the loan was as follows: Angela, Inc., a U.S. company, had a euro receivable from exports to Spain and a British pound payable resulting from imports from England. Angela recorded foreign exchange gain related to both its euro receivable and pound payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?

How is the fair value of a Forward Contract determined by U.S. GAAP?

On October 1, 2021, Jarvis Co. sold inventory to a customer in a foreign country, denominated in 100,000 local currency units (LCU). Collection is expected in four months. On October 1, 2021, a forward exchange contract was acquired whereby Jarvis Co. was to pay 100,000 LCU in four months (on February 1, 2022) and receive $78,000 in U.S. dollars. The spot and forward rates for the LCU were as follows: The company's borrowing rate is 12%. The present value factor for one month is 0.9901.Any discount or premium on the contract is amortized using the straight-line method.Assuming this is a cash flow hedge; prepare journal entries for this sales transaction and forward contract.

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2021: The appropriate exchange rates during 2021 were as follows: What amount will Coyote Corp. report in its 2021 balance sheet for Inventory?

Authoritative literature provides guidance for hedges of the following sources of foreign exchange risk.I. Recognized foreign currency denominated assets and liabilities.II. Unrecognized foreign currency firm commitments.III. Forecasted foreign currency denominated transactions.

All of the following data may be needed to determine the fair value of a forward contract at any point in time except

When a U.S. company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss?

Larson Company, a U.S. company, has an India rupee account receivable resulting from an export sale on September 7 to a customer in India. Larson signed a forward contract on September 7 to sell rupees and designated it as a cash flow hedge of a recognized receivable. The spot rate was $0.023, and the forward rate was $0.021. Which of the following did the U.S. exporter report in net income?

A U.S. company buys merchandise from a foreign company denominated in the foreign currency. Which of the following statements is true?

Where can you find exchange rates between the U.S. dollar and most foreign currencies?

Which of the following approaches is used in the United States in accounting for foreign currency transactions?

A spot rate may be defined as

A U.S. company sells merchandise to a foreign company denominated in the foreign currency. Which of the following statements is true?

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2021: The appropriate exchange rates during 2021 were as follows: What amount will Coyote Corp. report in its 2021 income statement for Sales?

Nelson Co. ordered parts costing §120,000 from a foreign supplier on May 12 when the spot rate was $0.31 per stickle. A one-month forward contract was signed on that date to purchase §120,000 at a forward rate of $0.32 per stickle. On June 12, when the parts were received and payment was made, the spot rate was $0.36 per stickle. At what amount should inventory be reported?

On December 1, 2021, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2022. Keenan purchased a foreign currency put option with a strike price of $0.97 (U.S.) on December 1, 2021. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: Compute the fair value of the foreign currency option at February 1, 2022.

Clark Co., a U.S. corporation, sold inventory on December 1, 2021, with payment of 12,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: What amount of foreign exchange gain or loss should be recorded on January 30?