Question 1

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

Accepted Answer

Foreign exchange rates are pub

Question 2

Lawrence Company, a U.S. company, ordered parts costing 1,000,000 Thailand bahts from a foreign supplier on July 7 when the spot rate was $.025 per baht. A one-month forward contract was signed on that date to purchase 1,000,000 bahts at a rate of $.027. The forward contract is properly designated as a fair value hedge of the 1,000,000 baht firm commitment. On August 7, when the parts are received, the spot rate is $.028. What is the amount of accounts payable that will be paid at this date?

Accepted Answer

A) $20,000. 
B) $20,100. 
C) $25,000. 
D) $27,000. 
E) $28,000. 
A) $20,000. 
B) $20,100. 
C) $25,000. 
D) $27,000. 
E) $28,000.

Question 3

Woolsey Corporation, a U.S. company, expects to sell goods to a British customer at a price of 250,000 pounds, with delivery and payment to be made on October 24. On July 24, Woolsey purchased a three-month put option for 250,000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction expected to be completed in late October. The following exchange rates apply: $\begin{array}{|l|l|}
\hline \text { Option strike price } & \$ 2.17 \
\hline \text { Option cost } & \$ 4,000 \
\hline \text { July 24 spot rate } & \$ 2.17 \
\hline \text { October 24 spot rate } & \$ 2.13 \
\hline \text { October 24 option premium } & \$ .04 \
\hline
\end{array}$ What amount will Woolsey include as an option expense in net income for the period July 24 to October 24?

Accepted Answer

A) $4,000. 
B) $5,000. 
C) $10,000. 
D) $12,000. 
E) $14,000. 
A) $4,000. 
B) $5,000. 
C) $10,000. 
D) $12,000. 
E) $14,000.

Question 4

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

Accepted Answer

A foreign currency forward contract obli

Question 5

Meisner Co. ordered parts costing §100,000 for a foreign supplier on May 12 when the spot rate was $.24 per stickle. A one-month forward contract was signed on that date to purchase §100,000 at a forward rate of $.25 per stickle. On June 12, when the parts were received and payment was made, the spot rate was $.28 per stickle. At what amount should inventory be reported?

Accepted Answer

A) $0. 
B) $28,000. 
C) $24,000. 
D) $25,000. 
E) $2,000. 
A) $0. 
B) $28,000. 
C) $24,000. 
D) $25,000. 
E) $2,000.

Question 6

Belsen purchased inventory on December 1, 2012. Payment of 200,000 stickles was to be made in sixty days. Also on December 1, Belsen signed a contract to purchase §200,000 in sixty days. The spot rate was §1 = .35714, and the 60-day forward rate was §1 = $.38462. On December 31, the spot rate was §1 = .34483 and the 30-day forward rate was §1 = .38168. Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901. In the journal entry to record the establishment of a forward exchange contract, at what amount should the Forward Contract account be recorded on December 1?

Accepted Answer

A) $71,428. 
B) $76,924. 
C) $588. 
D) $582. 
E) $0, since there is no cost, there is no value for the contract at this date. 
A) $71,428. 
B) $76,924. 
C) $588. 
D) $582. 
E) $0, since there is no cost, there is no value for the contract at this date.

Question 7

What happens when a U.S. company purchases goods denominated in a foreign currency and the foreign currency appreciates?

Accepted Answer

The event

Question 8

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2013: $$\begin{array} { | l | l | } 
\hline \text { Mar. 1 } & \text { Bought inventory costing } 60,000 \text { pesos on credit. } \
\hline \text { May 1 } & \text { Sold } 60 \% \text { of the inventory for } 54,000 \text { pesos on credit. } \
\hline \text { Aug. 1 } & \text { Collected } 48,000 \text { pesos from customers } \
\hline \text { Sept. 1 } & \text { Paid } 36,000 \text { pesos to creditors } \
\hline
\end{array}$$ The appropriate exchange rates during 2013 were as follows: $\begin{array}{|c|c|}
\hline & \text { Exchange } \
\hline \text { Date } & \text { Rate } \
\hline \text { March } 1,2013 & \$ .20=1 \text { peso } \\hline \text { May } 1,2013 & \mathbf{\$ . 2 2}=1 \text { peso } \
\hline \text { August } 1,2013 & \mathbf{\$ . 2 3}=1 \text { peso } \
\hline \text { September } 1,2013 & \mathbf{\$ . 2 4}=1 \text { peso } \
\hline \text { December } 31,2013 & \mathbf{\$ . 2 5}=1 \text { peso } \
\hline
\end{array}$ The beginning balance of cash was 50,000 pesos on January 1, 2013, translated at 1 peso = $.18. What amount will Coyote Corp. report in its 2013 balance sheet for Cash?

Accepted Answer

Cash (50,000 pesos ×

Question 9

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.

Question 10

On December 1, 2013, Joseph Company, a U.S. company, entered into a three-month forward contract to purchase 50,000 pesos on March 1, 2014, as a fair value hedge of a foreign currency denominated account payable. The following U.S. dollar per peso exchange rates apply: $\begin{array}{|l|c|c|}
\hline & & \text { Forward Rate } \
\hline \text { Date } & \text { Spot Rate } & \text { (Mar. 1, 2014) } \
\hline \text { December 1, 2013 } & \$ 0.092 & \$ 0.105 \
\hline \text { December 31, 2013 } & \$ 0.090 & \$ 0.095 \
\hline \text { March 1,2014 } & \$ 0.089 & \text { N/A } \
\hline
\end{array}$ Joseph's incremental borrowing rate is 12 percent. The present value factor for two months at an annual interest rate of 12 percent is .9803. Which of the following is included in Joseph's December 31, 2013 balance sheet for the forward contract?

Accepted Answer

A) $5,146.58 asset. 
B) $5,146.58 liability. 
C) $500.00 liability. 
D) $490.15 asset. 
E) $490.15 liability. 
A) $5,146.58 asset. 
B) $5,146.58 liability. 
C) $500.00 liability. 
D) $490.15 asset. 
E) $490.15 liability.

Question 11

Frankfurter Company, a U.S. company, had a ruble receivable from exports to Russia and a euro payable resulting from imports from Italy. Frankfurter recorded foreign exchange loss related to both its ruble receivable and euro payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date? $$\begin{array} { | l | l | l | } 
\hline & \text { Ruble } & \underline { \text { Euro } } \
\hline \text { A) } & \text { Increase } & \text { Decrease } \
\hline \text { B) } & \text { Decrease } & \text { Decrease } \
\hline \text { C) } & \text { Decrease } & \text { Increase } \
\hline \text { D) } & \text { No change } & \text { Decrease } \
\hline \text { E) } & \text { Increase } & \text { Increase } \
\hline
\end{array}$$

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
E) Option E 
A) Option A 
B) Option B 
C) Option C 
D) Option D 
E) Option E

Question 12

On May 1, 2013, Mosby Company received an order to sell a machine to a customer in Canada at a price of 2,000,000 Mexican pesos. The machine was shipped and payment was received on March 1, 2014. On May 1, 2013, Mosby purchased a put option giving it the right to sell 2,000,000 pesos on March 1, 2014 at a price of $190,000. Mosby properly designates the option as a fair value hedge of the peso firm commitment. The option cost $3,000 and had a fair value of $3,200 on December 31, 2013. The following spot exchange rates apply: $\begin{array}{|l|c|}
\hline \text { Date } & \text { Spot Rate } \
\hline \text { May 1,2013 } & \$ 0.095 \
\hline \text { December 31,2013 } & \$ 0.094 \
\hline \text { March 1,2014 } & \$ 0.089 \
\hline
\end{array}$ Mosby's incremental borrowing rate is 12 percent, and the present value factor for two months at a 12 percent annual rate is .9803. What was the overall result of having entered into this hedge of exposure to foreign exchange risk?

Accepted Answer

A) $0 
B) $9,000 net loss on the option. 
C) $9,000 net gain on the option. 
D) $2,000 net gain on the option. 
E) $2,000 net loss. 
A) $0 
B) $9,000 net loss on the option. 
C) $9,000 net gain on the option. 
D) $2,000 net gain on the option. 
E) $2,000 net loss.

Question 13

On March 1, 2013, Mattie Company received an order to sell a machine to a customer in England at a price of 200,000 British pounds. The machine was shipped and payment was received on March 1, 2014. On March 1, 2013, Mattie purchased a put option giving it the right to sell 200,000 British pounds on March 1, 2014 at a price of $380,000. Mattie properly designates the option as a fair hedge of the pound firm commitment. The option cost $2,000 and had a fair value of $2,200 on December 31, 2013. The following spot exchange rates apply: $\begin{array}{|l|c|}
\hline \text { Date } & \text { Spot Rate } \
\hline \text { March 1,2013 } & \$ 1.90 \
\hline \text { December 31,2013 } & \$ 1.89 \
\hline \text { March 1,2014 } & \$ 1.84 \
\hline
\end{array}$ Mattie's incremental borrowing rate is 12 percent, and the present value factor for two months at a 12 percent annual rate is .9803. What was the net increase or decrease in cash flow from having purchased the foreign currency option to hedge this exposure to foreign exchange risk?

Accepted Answer

A) $0 
B) $10,000 increase. 
C) $10,000 decrease. 
D) $20,000 increase. 
E) $20,000 decrease. 
A) $0 
B) $10,000 increase. 
C) $10,000 decrease. 
D) $20,000 increase. 
E) $20,000 decrease.

Question 14

Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2013. Pigskin received payment of 35,000 British pounds on May 8, 2013. The exchange rate was ≤1 = $1.54 on April 8 and ≤1 = 1.43 on May 8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar)

Accepted Answer

A) $10,500 loss 
B) $10,500 gain 
C) $1,750 loss 
D) $3,850 loss 
E) No gain or loss should be recognized. 
A) $10,500 loss 
B) $10,500 gain 
C) $1,750 loss 
D) $3,850 loss 
E) No gain or loss should be recognized.

Question 15

Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2013, with payment of 10 million Korean won to be received on January 15, 2014. The following exchange rates applied: $\begin{array}{lrr}&&\text { Forward }\
&\text { Spot}&\text {  Rate }\
\text { Date }&\text { Rate}&\text { to Jan. } 15\
\hline\text { December 16, 2013 } & \$ .00092 & \text { \$. } 00098 \
\text { December 31, 2013 } & .00090 & .00093 \
\text { January 15, 2014 } & .00095 & .00095
\end{array}$ Assuming a forward contract was entered into, what would be the net impact on Car Corp.'s 2013 income statement related to this transaction? Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901.

Accepted Answer

A) $700 (gain). 
B) $700 (loss). 
C) $300 (gain). 
D) $300 (loss). 
E) $297 (gain). 
A) $700 (gain). 
B) $700 (loss). 
C) $300 (gain). 
D) $300 (loss). 
E) $297 (gain).

Question 16

Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows: $$\begin{array} { | l | l | l | } 
\hline \text { May 8 } & \text { Spot rate: } & \$ 1.25 \
\hline \text { May 31 } & \text { Spot rate: } & \$ 1.26 \
\hline \text { Jun. 7 } & \text { Spot rate: } & \$ 1.20 \
\hline
\end{array}$$ For what amount should Brisco's Accounts Payable be credited on May 8?

Accepted Answer

A) $2,500,000. 
B) $2,440,000. 
C) $1,600,000. 
D) $1,639,344. 
E) $1,666,667. 
A) $2,500,000. 
B) $2,440,000. 
C) $1,600,000. 
D) $1,639,344. 
E) $1,666,667.

Question 17

All of the following hedges are used for future purchase/sale transactions except

Accepted Answer

A) Forward contracts used as a fair value hedge of a firm commitment. 
B) Options used as a fair value hedge of a firm commitment. 
C) Option contract cash flow hedge of a forecasted transaction. 
D) Forward contract cash flow hedges of a forecasted transaction. 
E) Forward contracts used to hedge a foreign currency denominated liability. 
A) Forward contracts used as a fair value hedge of a firm commitment. 
B) Options used as a fair value hedge of a firm commitment. 
C) Option contract cash flow hedge of a forecasted transaction. 
D) Forward contract cash flow hedges of a forecasted transaction. 
E) Forward contracts used to hedge a foreign currency denominated liability.

Question 18

On April 1, 2012, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2013. The dollar value of the loan was as follows: $\begin{array}{|l|l|}
\hline {\text { Date }} & \text { Amount } \
\hline \text { April 1,2012 } & \$ 97,000 \
\hline \text { December 31,2012 } & \$ 103,000 \
\hline \text { April 1,2013 } & \$ 105,000 \
\hline
\end{array}$ How much foreign exchange gain or loss should be included in Shannon's 2012 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

On October 31, 2012, Darling Company negotiated a two-year 100,000 franc loan from a foreign bank at an interest rate of 3 percent per year. Interest payments are made annually on October 31, and the principal will be repaid on October 31, 2014. Darling prepares U.S.-dollar financial statements and has a December 31 year-end. Prepare all journal entries related to this foreign currency borrowing assuming the following:

Accepted Answer

The answer of On October 31, 2012, Darling Company negotiated...

Question 20

Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2013, with payment of 10 million Korean won to be received on January 15, 2014. The following exchange rates applied: $\begin{array}{lrr}&&\text { Forward }\
&\text { Spot}&\text {  Rate }\
\text { Date }&\text { Rate}&\text { to Jan. } 15\
\hline\text { December 16, 2013 } & \$ .00092 & \text { \$. } 00098 \
\text { December 31, 2013 } & .00090 & .00093 \
\text { January 15, 2014 } & .00095 & .00095
\end{array}$ Assuming a forward contract was entered into, at what amount should the forward contract be recorded at December 31, 2013? Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901.

Accepted Answer

A) $200. 
B) $295. 
C) $495. 
D) $500. 
E) $9,300. 
A) $200. 
B) $295. 
C) $495. 
D) $500. 
E) $9,300.

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

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

What happens when a U.S. company purchases goods denominated in a foreign currency and the foreign currency appreciates?

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

All of the following hedges are used for future purchase/sale transactions except

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations-Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statementsintra-Entity Asset Transactions

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

Translation of Foreign Currency Financial Statements

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments, Part I

Accounting for State and Local Governments, Part II

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Exam 7: Foreign Currency Transactions and Hedging Foreign Exchange Risk

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

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

What happens when a U.S. company purchases goods denominated in a foreign currency and the foreign currency appreciates?

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

All of the following hedges are used for future purchase/sale transactions except

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations-Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statementsintra-Entity Asset Transactions

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

Translation of Foreign Currency Financial Statements

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments, Part I

Accounting for State and Local Governments, Part II

Filters