Exam 11: Multinational Accounting: Foreign Currency Transactions and Financial Instruments

Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November 30, 20X8, AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4 per barrel, with a February 1, 20X9, call date. The following is the pricing information for the term of the call: The information for the change in the fair value of the options follows: On February 1, 20X9, AMAR sells the options at their value on that date and acquires 20,000 barrels of oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112 per barrel. Based on the preceding information, which of the following entries will be required on February 1, 20X9?

On September 3, 20X8, Jackson Corporation purchases goods for a U.S. dollar equivalent of $17,000 from a Swiss company. The transaction is denominated in Swiss francs (SFr). The payment is made on October 10. The exchange rates were: What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on October 10?

On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share. Winston classifies them as available-for-sale securities. On this same date, it decides to hedge against a possible decline in the value of the securities by purchasing, at a cost of $250, an at-the-money put option to sell the 100 shares at $40 per share. The option expires on February 20, 20X9. Selected information concerning the fair values of the investment and the options follow: Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9. Based on the preceding information, the journal entry made on December 31, 20X8 to record decrease in the time value of the options will include:

On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share. Winston classifies them as available-for-sale securities. On this same date, it decides to hedge against a possible decline in the value of the securities by purchasing, at a cost of $250, an at-the-money put option to sell the 100 shares at $40 per share. The option expires on February 20, 20X9. Selected information concerning the fair values of the investment and the options follow: Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9. Based on the preceding information, what is the market price of Linked Corporation stock on February 20, 20X9?

On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is denominated in Saudi riyals. Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are: Based on the preceding information, what journal entry would Imperial make on January 10, 20X9, to revalue foreign currency payable to equivalent U.S. dollar value?

Levin company entered into a forward contract to speculate in the foreign currency. It sold 100,000 foreign currency units under a contract dated November 1, 20X8, for delivery on January 31, 20X9: In its income statement for the year ended December 31, 20X8, what amount of loss should Levin report from this forward contract?

Note: This is a Kaplan CPA Review Question On September 1, 20X1, Brady Corp. entered into a foreign exchange contract for speculative purposes by purchasing 50,000 deutsche marks for delivery in 60 days. The rates to exchange $1 for 1 deutsche mark follow: In its September 30, 20X1 income statement, what amount should Brady report as foreign exchange loss?

Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9 with settlement to be in 60 days. On the same date, Alman entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were: Based on the preceding information, had Myway not used the forward exchange contract, net income for the year would have:

Which of the following observations is true of forwards contracts?

Quantum Company imports goods from different countries. Some transactions are denominated in U.S. dollars and others in foreign currencies. A summary of accounts receivable and accounts payable on December 31, 20X8, before adjustments for the effects of changes in exchange rates during 20X8, follows: The spot rates on December 31, 20X8, were: The average exchange rates during the collection and payment period in 20X9 are: Required: 1) Prepare the adjusting entries on December 31, 20X8. 2) Record the collection of the accounts receivable and the payment of the accounts payable in 20X9. 3) What was the foreign currency gain or loss on the accounts receivable transaction denominated in SFr for the year ended December 31, 20X8? For the year ended December 31, 20X9? Overall for this transaction? 4) What was the foreign currency gain or loss on the accounts receivable transaction denominated in ¥? For the year ended December 31, 20X8? For the year ended December 31, 20X9? Overall for this transaction?

Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1, 20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs. The forward contract is not designated as a hedge. The rates were as follows: Based on the preceding information, the entries on December 31, 20X8, include a:

Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1, 20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs. The forward contract is not designated as a hedge. The rates were as follows: Based on the preceding information, the entries on January 30, 20X9, include a:

Detroit based Auto Corporation, purchased ancillaries from a Japanese firm on December 1, 20X8, for 1,000,000 Yen, when the spot rate for Yen was $.0095. On December 31, 20X8, the spot rate stood at $.0096. On January 10, 20X9 Auto paid 1,000,000 Yen acquired at a rate of $.0094. Auto's income statements should report a foreign exchange gain or loss for the years ended December 31, 20X8 and 20X9 of:

Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1, 20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs. The forward contract is not designated as a hedge. The rates were as follows: Based on the preceding information, the entries on January 30, 20X9, include a:

On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42. The rates are as follows: Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes. Based on the preceding information, what is the overall effect of speculation on 20X9 net income?

On March 1, 20X8, Wilson Corporation sold goods for a U.S. dollar equivalent of $31,000 to a Thai company. The transaction is denominated in Thai bahts. The payment is received on May 10. The exchange rates were: What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on May 10?

Suppose the direct foreign exchange rates in U.S. dollars are: 1 Singapore dollar = $.7025 1 Cyprus pound = $2.5132 Based on the information given above, how many U.S. dollars must be paid for a purchase of citrus fruits costing 10,000 Cyprus pounds?

On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42. The rates are as follows: Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes. Based on the preceding information, what is the effect of the British pound speculative contract on 20X8 net income?

Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November 30, 20X8, AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4 per barrel, with a February 1, 20X9, call date. The following is the pricing information for the term of the call: The information for the change in the fair value of the options follows: On February 1, 20X9, AMAR sells the options at their value on that date and acquires 20,000 barrels of oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112 per barrel. Based on the preceding information, which of the following adjusting entries would be required on December 31, 20X8?

Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1, 20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs. The forward contract is not designated as a hedge. The rates were as follows: Based on the preceding information, the entries on January 30, 20X9, include a: