Question 1

Which of the following statements is true concerning hedge accounting?

Accepted Answer

A)  Hedges of foreign currency firm commitments are used for future sales only. 
B)  Hedges of foreign currency firm commitments are used for future purchases only. 
C)  Hedges of foreign currency firm commitments are used for current sales or purchases. 
D)  Hedges of foreign currency firm commitments are used for future sales or purchases. 
E)  Hedges of foreign currency firm commitments are entered into for speculative purposes. 
A)  Hedges of foreign currency firm commitments are used for future sales only. 
B)  Hedges of foreign currency firm commitments are used for future purchases only. 
C)  Hedges of foreign currency firm commitments are used for current sales or purchases. 
D)  Hedges of foreign currency firm commitments are used for future sales or purchases. 
E)  Hedges of foreign currency firm commitments are entered into for speculative purposes.

Question 2

Clark Stone purchases raw material from its foreign supplier, Rinne Clay, on May 8. Payment of 1,500,000 foreign currency units (FC) is due in 30 days. May 31 is Clark's fiscal year-end. The pertinent exchange rates were as follows:   For what amount should Clark's Accounts Payable be credited on May 8?

Accepted Answer

A)  $1,740,000. 
B)  $1,850,000. 
C)  $1,500,000. 
D)  $1,680,000. 
E)  $1,770,000. 
A)  $1,740,000. 
B)  $1,850,000. 
C)  $1,500,000. 
D)  $1,680,000. 
E)  $1,770,000.

Question 3

For each of the following situations, select the best answer concerning accounting for foreign currency transactions:(G) Results in a foreign exchange gain.(L) Results in a foreign exchange loss.(N) No foreign exchange gain or loss. . Export sale by a U.S. company denominated in dollars, foreign currency of buyer appreciates._____2. Export sale by a U.S. company denominated in foreign currency, foreign currency of buyer appreciates._____3. Import purchase by a U.S. company denominated in foreign currency, foreign currency of seller appreciates._____4. Import purchase by a U.S. company denominated in dollars, foreign currency of seller appreciates._____5. Import purchase by a U.S. company denominated in foreign currency, foreign currency of seller depreciates._____6. Import purchase by a U.S. company denominated in dollars, foreign currency of seller depreciates._____7. Export sale by a U.S. company denominated in dollars, foreign currency of buyer depreciates._____8. Export sale by a U.S. company denominated in foreign currency, foreign currency of buyer depreciates.

Accepted Answer

(1) N; (2) G; (3) L

Question 4

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 Cost of goods sold?

Accepted Answer

Cost of goods sold (

Question 5

All of the following data points are needed to determine the fair value of a forward contract (at any point), except

Accepted Answer

A)  The forward rate when the forward contract was entered into. 
B)  The current forward rate for a contract that matures on the same date as the forward contract entered into. 
C)  The forward rate for a contract that has the same duration as the forward contract entered into. 
D)  A discount rate which is typically the company's incremental borrowing rate. 
E)  A future rate which is typically the company's incremental borrowing rate. 
A)  The forward rate when the forward contract was entered into. 
B)  The current forward rate for a contract that matures on the same date as the forward contract entered into. 
C)  The forward rate for a contract that has the same duration as the forward contract entered into. 
D)  A discount rate which is typically the company's incremental borrowing rate. 
E)  A future rate which is typically the company's incremental borrowing rate.

Question 6

How can an import purchase result in an exposure to foreign exchange risk for the buyer?

Accepted Answer

Exposure to foreign exchange risk occurs

Question 7

Jackson Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2021, with payment of 20 million Korean won to be received on January 15, 2022. The following exchange rates applied:   Assuming a forward contract was entered into on December 16, what would be the net impact on Jackson's 2021 income statement related to this transaction? Assume an annual interest rate of 12% and a fair value hedge. The present value for one half-month at 12% is 0.9950.

Accepted Answer

A)  $800 (gain). 
B)  $1,594 (loss). 
C)  $1,594 (gain). 
D)  $794 (loss). 
E)  $794 (gain). 
A)  $800 (gain). 
B)  $1,594 (loss). 
C)  $1,594 (gain). 
D)  $794 (loss). 
E)  $794 (gain).

Question 8

The forward rate may be defined as

Accepted Answer

A)  The price a foreign currency can be purchased or sold today. 
B)  The price today at which a foreign currency can be purchased or sold in the future. 
C)  The forecasted future value of a foreign currency. 
D)  The U.S. dollar value of a foreign currency. 
E)  The Euro value of a foreign currency. 
A)  The price a foreign currency can be purchased or sold today. 
B)  The price today at which a foreign currency can be purchased or sold in the future. 
C)  The forecasted future value of a foreign currency. 
D)  The U.S. dollar value of a foreign currency. 
E)  The Euro value of a foreign currency.

Question 9

Potter Corp. (a U.S. company in Colorado) had the following series of transactions in a foreign country during 2021:   The appropriate exchange rates during 2021 were as follows:   Prepare all journal entries in U.S. dollars along with any December 31, 2021 adjusting entries. Potter uses a perpetual inventory system.

Accepted Answer

The answer of Potter Corp. (a U.S. company in Colorado)...

Question 10

How does a foreign currency forward contract differ from a foreign currency option?

Accepted Answer

A foreign currency forward contract obli

Question 11

Winston Corp., a U.S. company, had the following foreign currency transactions during 2021:(1.) Purchased merchandise from a foreign supplier on July 16, 2021 for the U.S. dollar equivalent of $47,000 and paid the invoice on August 3, 2021 at the U.S. dollar equivalent of $54,000.(2.) On October 15, 2021 borrowed the U.S. dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15, 2022. The U.S. dollar equivalent of the note amount was $295,000 on December 31, 2021, and $299,000 on October 15, 2022.What amount should be included as a foreign exchange gain or loss from the two transactions for 2022?

Accepted Answer

A)  $1,000 loss. 
B)  $1,000 gain. 
C)  $2,000 loss. 
D)  $4,000 gain. 
E)  $4,000 loss. 
A)  $1,000 loss. 
B)  $1,000 gain. 
C)  $2,000 loss. 
D)  $4,000 gain. 
E)  $4,000 loss.

Question 12

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 December 1, 2021.

Accepted Answer

A)  $6,000. 
B)  $4,500. 
C)  $3,000. 
D)  $7,500. 
E)  $1,500. 
A)  $6,000. 
B)  $4,500. 
C)  $3,000. 
D)  $7,500. 
E)  $1,500.

Question 13

On June 1, Cagle Co. received a signed agreement to sell inventory for ¥650,000. The sale would take place in 90 days. Cagle immediately signed a 90-day forward contract to sell the yen as soon as they are received. The spot rate on June 1 was ¥1 = $0.003986, and the 90-day forward rate was ¥1 = $0.004021. At what amount would Cagle record the Forward Contract on June 1?

Accepted Answer

A)  $2,613.65. 
B)  $0. 
C)  $2,590.90. 
D)  $2,275.00. 
E)  $1,993.00. 
A)  $2,613.65. 
B)  $0. 
C)  $2,590.90. 
D)  $2,275.00. 
E)  $1,993.00.

Question 14

Gaw Produce Company purchased inventory from a Japanese company on December 18, 2021. Payment of 4,000,000 yen (¥) was due on January 18, 2022. Exchange rates between the dollar and the yen were as follows:   Required:Prepare all journal entries for Gaw Produce Co. in connection with the purchase and payment.

Accepted Answer

The answer of Gaw Produce Company purchased inventory from a...

Question 15

Primo Inc., a U.S. company, ordered parts costing 100,000 rupee from a foreign supplier on July 7 when the spot rate was $0.025 per rupee. A one-month forward contract was signed on that date to purchase 100,000 rupee at a rate of $0.027. The forward contract is properly designated as a fair value hedge of the 100,000 rupee firm commitment. On August 7, when the parts are received, the spot rate is $0.028. At what amount should the payable be carried on Primo's books?

Accepted Answer

A)  $2,000. 
B)  $2,100. 
C)  $2,500. 
D)  $2,700. 
E)  $2,800. 
A)  $2,000. 
B)  $2,100. 
C)  $2,500. 
D)  $2,700. 
E)  $2,800.

Question 16

On October 1, 2021, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2022, at a price of 100,000 British pounds. On October 1, 2021, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. On December 31, 2021, the option has a fair value of $1,600. The following spot exchange rates apply:   What is the amount of Cost of Goods Sold for 2022 as a result of these transactions?

Accepted Answer

A)  $200,000. 
B)  $195,000. 
C)  $201,000. 
D)  $202,600. 
E)  $203,000. 
A)  $200,000. 
B)  $195,000. 
C)  $201,000. 
D)  $202,600. 
E)  $203,000.

Question 17

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 fair value hedge; prepare journal entries for this sales transaction and forward contract.

Accepted Answer

@#IMG-DLM& ¹ [($0.80 − $0.78) 1

Question 18

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 2020 income statement?

Accepted Answer

A)  $3,000 gain. 
B)  $3,000 loss. 
C)  $6,000 gain. 
D)  $6,000 loss. 
E)  $7,000 gain. 
A)  $3,000 gain. 
B)  $3,000 loss. 
C)  $6,000 gain. 
D)  $6,000 loss. 
E)  $7,000 gain.

Question 19

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

Accepted Answer

Accounts receivable

Question 20

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

Accepted Answer

A)  If the foreign currency appreciates, a foreign exchange gain will result. 
B)  If the foreign currency depreciates, a foreign exchange gain will result. 
C)  No foreign exchange gain or loss will result. 
D)  If the foreign currency appreciates, a foreign exchange loss will result. 
E)  Any gain or loss will be included in comprehensive income. 
A)  If the foreign currency appreciates, a foreign exchange gain will result. 
B)  If the foreign currency depreciates, a foreign exchange gain will result. 
C)  No foreign exchange gain or loss will result. 
D)  If the foreign currency appreciates, a foreign exchange loss will result. 
E)  Any gain or loss will be included in comprehensive income.

Which of the following statements is true concerning hedge accounting?

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 Cost of goods sold?

All of the following data points are needed to determine the fair value of a forward contract (at any point), except

How can an import purchase result in an exposure to foreign exchange risk for the buyer?

The forward rate may be defined as

How does a foreign currency forward contract differ from a foreign currency option?

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 2020 income statement?

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

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

Accounting for Estates and Trusts

Accounting and Reporting for Private Not-For-Profit Organizations

Accounting for State and Local Governments, Part II

Accounting for State and Local Governments, Part I

Partnerships: Termination and Liquidation

Partnerships: Formation and Operation

Accounting for Legal Reorganizations and Liquidations

Financial Reporting and the Securities and Exchange Commission

Worldwide Accounting Diversity and International Accounting Standards

Translation of Foreign Currency Financial Statements

Segment and Interim Reporting

Consolidated Financial Statements - Ownership Patterns and Income Taxes

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Consolidated Financial Statements Intra-Entity Asset Transactions

Consolidated Financial Statements and Outside Ownership

Consolidations - Subsequent to the Date of Acquisition

Consolidation of Financial Information

The Equity Method of Accounting for Investments

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Exam 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk

Which of the following statements is true concerning hedge accounting?

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 Cost of goods sold?

All of the following data points are needed to determine the fair value of a forward contract (at any point), except

How can an import purchase result in an exposure to foreign exchange risk for the buyer?

The forward rate may be defined as

How does a foreign currency forward contract differ from a foreign currency option?

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 2020 income statement?

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

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

Accounting for Estates and Trusts

Accounting and Reporting for Private Not-For-Profit Organizations

Accounting for State and Local Governments, Part II

Accounting for State and Local Governments, Part I

Partnerships: Termination and Liquidation

Partnerships: Formation and Operation

Accounting for Legal Reorganizations and Liquidations

Financial Reporting and the Securities and Exchange Commission

Worldwide Accounting Diversity and International Accounting Standards

Translation of Foreign Currency Financial Statements

Segment and Interim Reporting

Consolidated Financial Statements - Ownership Patterns and Income Taxes

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Consolidated Financial Statements Intra-Entity Asset Transactions

Consolidated Financial Statements and Outside Ownership

Consolidations - Subsequent to the Date of Acquisition

Consolidation of Financial Information

The Equity Method of Accounting for Investments

Filters