Exam 8: Foreign Currency Transactions and Hedging

Use the following data to answer bellow Questions On May 20, when the exchange rate was $1.40/£, a U.S. company purchased merchandise from a U.K. supplier for £10,000 and paid for the merchandise on June 5, when the exchange rate was $1.38/£. On August 15, when the exchange rate was $1.23/€, the U.S. company sold the merchandise to a customer in Belgium at an invoice price of €16,000. On September 6, when the exchange rate was $1.21/€, the U.S. company received payment of €16,000 from the Belgian customer. The U.S. company's accounting year ends December 31. -What is the U.S. company's net exchange gain or loss for the year?

Use the following information on the U.S. dollar value of the pound sterling to answer bellow Questions Spot Rate Forward Rate for August 16, 2020 Delivery May 16, 2020 \ 1.380 \ 1.375 June 30, 2020 1.390 1.388 August 16, 2020 1.400 1.400 On May 16, 2020, a U.S. company takes delivery of £100,000 in merchandise from a U.K. supplier. The company will pay the supplier £100,000 on August 16. On May 16, the company also enters a forward contract to buy £100,000 on August 16, 2020. On August 16, the company purchases £100,000 using the forward contract, and pays the supplier. The company's accounting year ends June 30, and it sells the merchandise in September 2020. -How will the company report the forward contract on its June 30, 2020 balance sheet?

Use the following data to answer bellow Questions On November 30, 2020, a U.S. company purchased merchandise on credit from a Swiss supplier at an invoice price of CHF1,000, when the exchange rate was $1.05/CHF. On December 31, 2020, the company's year-end, the exchange rate was $1.045/CHF. On February 1, 2021, the company purchased the CHF1,000 for $1.048/CHF and paid the invoice. On March 15, 2021, when the exchange rate was $1.044, the company sold the merchandise to a U.S. customer for $2,000. -At what amount should the merchandise be reported on the U.S. company's December 31, 2020 balance sheet?

Use the following data to answer bellow Questions On November 30, 2020, a U.S. company purchased merchandise on credit from a Swiss supplier at an invoice price of CHF1,000, when the exchange rate was $1.05/CHF. On December 31, 2020, the company's year-end, the exchange rate was $1.045/CHF. On February 1, 2021, the company purchased the CHF1,000 for $1.048/CHF and paid the invoice. On March 15, 2021, when the exchange rate was $1.044, the company sold the merchandise to a U.S. customer for $2,000. -The U.S. company's exchange gain or loss for 2020 is:

A U.S. company has subsidiaries whose functional currency is their local currency. Assume the subsidiaries have a positive net asset position. Which investment hedges the U.S. company's currency risk from these subsidiaries?

A U.S. company buys merchandise from a Singapore supplier on May 1 for S$100,000. The company pays the bill on August 1. To hedge foreign exchange risk, on May 1 the U.S. company enters a forward purchase contract for S$100,000 with an August 1 delivery date. On August 1 the company purchases the Singapore dollars through the forward contract and pays the supplier. On August 15 the company sells the merchandise to a U.S. customer for $90,000 in cash. Assume the company records cost of goods sold when the sale is made. The company's fiscal year ends June 30. Relevant rates ($/S$) are as follows: Spot Rate Forward Rate for August 1 Delivery May 1 \ 0.758 \ 0.759 June 30 0.767 0.770 August 1 0.773 0.773 Required Make the journal entries to record the above events, including appropriate fiscal year-end adjusting entries.

How are accounts payable, denominated in another currency, reported on a U.S. company's balance sheet?

On November 1, 2020, a U.S. company invests in a forward purchase contract for delivery of 1,000,000 Singapore dollars (S$) at $0.75/S$ on February 1, 2021. The spot rate on November 1 is $0.77/S$. At December 31, the end of the accounting year, the forward contract is still outstanding. The year-end spot rate is $0.73. The year-end forward rate for February 1 delivery of Singapore dollars is $0.735. How is the forward contract reported on the U.S. company's year-end balance sheet?

A U.K. company that reports using IFRS plans on acquiring a building from a U.S. company, at a price denominated in U.S. dollars. The U.K. company locks in the price of the building, in pounds, using a forward purchase contract. The company reports a gain on the forward contract. When the gain from the forward purchase is reclassified from accumulated other comprehensive income, what is the effect?

Use the following data to answer bellow Questions On October 25, 2020, a U.S. company sold merchandise on credit to a customer in Spain at an invoice price of €1,000, when the exchange rate was $1.25/€. On December 31, 2020, the U.S. company's year-end, the exchange rate was $1.257/€. On February 1, 2021, when the exchange rate was €1.23, the U.S. company received €1,000 in payment for the merchandise. -The U.S. company's exchange gain or loss for 2021 is

Use the following information on the U.S. dollar value of the euro to answer bellow Questions Spot Rate Forward Rate for April 30, 2021 Delivery October 30,2020 \1 .230 \ 1.240 November 1, 2020 1.248 1.254 December 31,2020 1.260 1.265 April 30, 2021 1.270 1.720 On October 30, 2020, a U.S. company receives a purchase order from a customer in Spain. Under the sale terms, the customer will pay the company €100,000 on April 30. On October 30, the U.S. company also enters a forward contract to sell €100,000 on April 30, 2021. The company delivers the merchandise to the customer on November 1. On April 30, the company receives €100,000 from the customer and sells it using the forward contract. The company's accounting year ends December 31. -On November 1, 2020, the company reports sales revenue in the amount of:

On November 30, 2019, a U.S. company, with a December 31 year-end, enters a forward sale contract for £100,000 to be delivered on March 20, 2020, when the forward rate for March 20 delivery is $1.38/£. The forward contract does not qualify as a hedge. At year-end, the forward rate for delivery on March 30 is $1.375/€. The company closes the contract at its expiration date, when the spot rate is $1.40/€. At what amount are gains and losses reported in income on the forward in 2019 and 2020? $\quad$$\quad$ A) \ 0 \ 2,000 gain B) \ 0 \2 ,000 loss C) \5 00 gain \ 2,500 loss D) \ 500 loss \ 2,500 gain

In the footnotes to a U.S. company's annual report, it says "Certain foreign-currency-denominated assets are used, in part, to protect the value of the Company's investments in certain foreign subsidiaries.....from changes in foreign currency exchange rates." Which statement is most likely to be true regarding this footnote disclosure?

A U.S. company sells merchandise to a German customer on May 1 for €100,000. The customer pays the bill on August 1. To hedge foreign exchange risk, on May 1 the U.S. company enters a forward sale contract for €100,000 with an August 1 delivery date. On August 1, the company collects the €100,000 from the customer and closes the forward contract. The company's fiscal year ends June 30. Relevant rates ($/€) are as follows: Spot Rate Forward Rate for August 1 Delivery May 1 \ 1.235 \ 1.237 June 30 1.241 1.244 August 1 1.256 1.256 Required Make the journal entries to record the above events, including appropriate fiscal year-end adjusting entries.

You have inside information that the U.S. dollar will significantly strengthen against the yuan in the future. Which position will allow you to benefit from your information?

A U.S. company reports a forward contract as a cash flow hedge of a forecasted sale of merchandise to a U.K. customer, payment to be received in pounds. When are gains and losses on the forward contract reported in income?

A U.S. company has subsidiaries whose functional currency is the U.S. dollar. Assume the subsidiaries' liabilities remeasured at the current rate exceed their assets remeasured at the current rate. Which investment hedges the U.S. company's currency risk from these subsidiaries?

On November 1, 2020, a U.S. company enters into a forward sale contract, in which it agrees to sell €100,000 at a rate of $1.25 on February 1, 2021, when it expects to receive €100,000. The company's accounting year ends December 31. Changes in the value of the forward contract are reported in 2020 income in which one of the following situations?

Use the following information on the U.S. dollar value of the euro to answer bellow Questions Spot Rate Forward Rate for March 16, 2020 Delivery November 16, 2019 \ 1.250 \ 1.248 December 31, 2019 1.260 1.255 March 16, 2020 1.265 1.265 On November 16, 2019, a U.S. company makes a sale to a customer in Germany. Under the sale terms, the customer will pay the company €100,000 on March 16. On November 16, the company also enters a forward contract to sell €100,000 on March 16, 2020. On March 16, the company receives €100,000 from the customer and sells it using the forward contract. The company's accounting year ends December 31. -At what amount will the company report sales revenue on its 2019 income statement?

A U.S. company sells goods to a customer in Canada on October 20, 2020, at a price of C$100,000. The company receives payment from the customer, in Canadian dollars, on February 1, 2021, and immediately converts the payment to U.S. dollars. The U.S. company has a December 31 year-end. Spot rates ($/C$) are as follows: Spot Rate October 20, 2020 \ 0.815 December 31, 2020 0.800 February 1, 2021 0.819 Required Prepare the U.S. company's journal entries to record these events.