Question 1

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. E

Question 2

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. A

Question 3

What factors create a foreign exchange gain?

Accepted Answer

Foreign exchange gains and losses are created by two factors: having foreign currency exposures (foreign currency receivables and payables) and changes in exchange rates.

Question 4

Pigskin Co., a U.S.corporation, sold inventory on credit to a British company on April 8, 2018.Pigskin received payment of 35,000 British pounds on May 8, 2018.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 5

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 6

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

Accepted Answer

The event

Question 7

What amount should be included as a foreign exchange gain or loss from the two transactions for 2019?

Accepted Answer

A)  $ 9,000 loss. 
B)  $ 9,000 gain. 
C)  $11,000 loss. 
D)  $21,000 loss. 
E)  $21,000 gain. 
A)  $ 9,000 loss. 
B)  $ 9,000 gain. 
C)  $11,000 loss. 
D)  $21,000 loss. 
E)  $21,000 gain.

Question 8

What is meant by the spot rate?

Accepted Answer

The spot rate is the

Question 9

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

Accepted Answer

The fair value of a Forward Contract is

Question 10

What is the purpose of a hedge of foreign exchange risk?

Accepted Answer

Hedge of foreign exchange risk is a stra

Question 11

What is the amount of option expense for 2019 from these transactions?

Accepted Answer

A)  $1,000. 
B)  $1,600. 
C)  $2,500. 
D)  $2,600. 
E)  $ 0. 
A)  $1,000. 
B)  $1,600. 
C)  $2,500. 
D)  $2,600. 
E)  $ 0.

Question 12

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 13

The beginning balance of cash was 50,000 pesos on January 1, 2018, translated at 1 peso = $.18.What amount will Coyote Corp.report in its 2018 balance sheet for Cash?

Accepted Answer

Cash (50,000 pesos ×

Question 14

A spot 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 15

What was the net impact on Mattie's 2019 income including the fair value hedge of a firm commitment?

Accepted Answer

A)  $379,760.60 decrease. 
B)  $ 8,360.60 increase. 
C)  $ 8,360.60 decrease. 
D)  $ 4,390.40 decrease. 
E)  $379,760.60 increase. 
A)  $379,760.60 decrease. 
B)  $ 8,360.60 increase. 
C)  $ 8,360.60 decrease. 
D)  $ 4,390.40 decrease. 
E)  $379,760.60 increase.

Question 16

What journal entry should Eagle prepare on October 1, 2018?

Accepted Answer

The answer of What journal entry should Eagle prepare on...

Question 17

What amount should be included as a foreign exchange gain or loss from the two transactions for 2018?

Accepted Answer

A)  $ 2,000 loss. 
B)  $ 2,000 gain. 
C)  $10,000 gain. 
D)  $14,000 loss. 
E)  $ 14,000 gain. 
A)  $ 2,000 loss. 
B)  $ 2,000 gain. 
C)  $10,000 gain. 
D)  $14,000 loss. 
E)  $ 14,000 gain.

Question 18

Belsen purchased inventory on December 1, 2017.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 19

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 20

To account for a forward contract cash flow hedge of a foreign currency denominated asset or liability at the balance sheet date

Accepted Answer

A)  1. Adjust hedged asset or liability to fair value, with counterpart (change in fair value) reported as foreign exchange gain or loss in net income, 2. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported in AOCI, 3. Transfer an amount from AOCI to net income to offset the foreign exchange gain or loss on the hedged asset or liability recognized in 1, and 4. Transfer from AOCI to net income (as discount expense or premium revenue) the current period's amortization of discount or premium 
B)  1. Adjust hedged asset or liability to fair value, with counterpart (change in fair value) reported as foreign exchange gain or loss in net income and 2. Adjust option to fair value (either an asset or zero value), with counterpart (change in fair value) reported as gain or loss in net income 
C)  1. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported as gain or loss in net income and 2. Adjust firm commitment to fair value (based on change in forward rate), with counterpart (change in fair value) reported as gain or loss in net income 
D)  1. Adjust hedged asset, with counterpart (change in fair value) reported as a foreign exchange gain in net income and 2. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported as a gain or loss in net income 
E)  1. None. No journal entry is required. 
A)  1. Adjust hedged asset or liability to fair value, with counterpart (change in fair value) reported as foreign exchange gain or loss in net income, 2. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported in AOCI, 3. Transfer an amount from AOCI to net income to offset the foreign exchange gain or loss on the hedged asset or liability recognized in 1, and 4. Transfer from AOCI to net income (as discount expense or premium revenue) the current period's amortization of discount or premium 
B)  1. Adjust hedged asset or liability to fair value, with counterpart (change in fair value) reported as foreign exchange gain or loss in net income and 2. Adjust option to fair value (either an asset or zero value), with counterpart (change in fair value) reported as gain or loss in net income 
C)  1. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported as gain or loss in net income and 2. Adjust firm commitment to fair value (based on change in forward rate), with counterpart (change in fair value) reported as gain or loss in net income 
D)  1. Adjust hedged asset, with counterpart (change in fair value) reported as a foreign exchange gain in net income and 2. Adjust forward contract to fair value (either an asset or a liability), with counterpart (change in fair value) reported as a gain or loss in net income 
E)  1. None. No journal entry is required.

Exam 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk

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

What amount will Woolsey include as an option expense in net income for the period July 24 to October 24?

What factors create a foreign exchange gain?

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

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

What amount should be included as a foreign exchange gain or loss from the two transactions for 2019?

What is meant by the spot rate?

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

What is the purpose of a hedge of foreign exchange risk?

What is the amount of option expense for 2019 from these transactions?

For what amount should Brisco's Accounts Payable be credited on May 8?

The beginning balance of cash was 50,000 pesos on January 1, 2018, translated at 1 peso = $.18.What amount will Coyote Corp.report in its 2018 balance sheet for Cash?

A spot rate may be defined as

What was the net impact on Mattie's 2019 income including the fair value hedge of a firm commitment?

What journal entry should Eagle prepare on October 1, 2018?

What amount should be included as a foreign exchange gain or loss from the two transactions for 2018?

The forward rate may be defined as

To account for a forward contract cash flow hedge of a foreign currency denominated asset or liability at the balance sheet date

The Equity Method of Accounting for Investments

A: the Equity Method of Accounting for Investments

Consolidation of Financial Information

A: Consolidation of Financial Information

Consolidations - Subsequent to the Date of Acquisition

A: Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

A: Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements Intra-Entity Asset Transactions

A: Consolidated Financial Statements Intra-Entity Asset Transactions

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

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

Consolidated Financial Statements - Ownership Patterns and Income Taxes

A: Consolidated Financial Statements - Ownership Patterns and Income Taxes

Segment and Interim Reporting

A: Segment and Interim Reporting

A: Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

A: Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Accounting Standards

A: Worldwide Accounting Diversity and International Accounting Standards

Financial Reporting and the Securities and Exchange Commission

A: Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

A: Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operation

A: Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

A: Partnerships: Termination and Liquidation

Accounting for State and Local Governments, Part I

A: Accounting for State and Local Governments, Part I

Accounting for State and Local Governments, Part II

A: Accounting for State and Local Governments, Part II

Accounting for Not-For-Profit Entities

A: Accounting for Not-For-Profit Entities

Accounting for Estates and Trusts

A: Accounting for Estates and Trusts

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