Question 1

Which of the following is not a condition of accounting for hedge derivatives?

Accepted Answer

A)  The derivative is minimally effective in offsetting changes in the cash flows or fair value related to the hedged item. 
B)  The derivative is properly documented as a hedge. 
C)  The derivative is used to hedge a cash flow exposure to foreign exchange risk. 
D)  The derivative is highly effective in offsetting changes in the cash flows or fair value related to the hedged item. 
E)  The derivative is used to hedge a fair value exposure to foreign exchange risk. 
A)  The derivative is minimally effective in offsetting changes in the cash flows or fair value related to the hedged item. 
B)  The derivative is properly documented as a hedge. 
C)  The derivative is used to hedge a cash flow exposure to foreign exchange risk. 
D)  The derivative is highly effective in offsetting changes in the cash flows or fair value related to the hedged item. 
E)  The derivative is used to hedge a fair value exposure to foreign exchange risk.

Question 2

What amount will Coyote Corp.report in its 2018 income statement for Sales?

Accepted Answer

Sales (54,

Question 3

Old Colonial Corp.(a U.S.company) made a sale to a foreign customer on September 15, 2018, for 100,000 stickles.Payment was received on October 15, 2018.The following exchange rates applied:
   Required:
Prepare all journal entries for Old Colonial Corp.in connection with this sale assuming that the company closes its books on September 30 to prepare interim financial statements.

Accepted Answer

The answer of Old Colonial Corp.(a U.S.company) made a sale...

Question 4

On June 1, CamCo received a signed agreement to sell inventory for ¥500,000.The sale would take place in 90 days.CamCo 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 =$.004167, and the 90-day forward rate was ¥1 = $.00427.At what amount would CamCo record the Forward Contract on June 1?

Accepted Answer

A)  $2,083. 
B)  $ 0. 
C)  $2,110. 
D)  $2,532. 
E)  $2,135. 
A)  $2,083. 
B)  $ 0. 
C)  $2,110. 
D)  $2,532. 
E)  $2,135.

Question 5

When a U.S.company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss?

Accepted Answer

A)  The transaction is denominated in U.S. dollars. 
B)  The option strike price to sell foreign currency is less than the spot rate of the currency. 
C)  The option strike price to buy foreign currency is less than the spot rate of the currency. 
D)  The foreign currency appreciated in value relative to the U.S. dollar. 
E)  The foreign currency depreciated in value relative to the U.S. dollar. 
A)  The transaction is denominated in U.S. dollars. 
B)  The option strike price to sell foreign currency is less than the spot rate of the currency. 
C)  The option strike price to buy foreign currency is less than the spot rate of the currency. 
D)  The foreign currency appreciated in value relative to the U.S. dollar. 
E)  The foreign currency depreciated in value relative to the U.S. dollar.

Question 6

On April 1, Quality Corporation, a U.S.company, expects to sell merchandise to a French customer in three months, denominating the transaction in euros.On April 1, the spot rate is $1.41 per euro, and Quality enters into a three-month forward contract cash flow hedge to sell 400,000 euros at a rate of $1.36.At the end of three months, the spot rate is $1.37 per euro, and Quality delivers the merchandise, collecting 400,000 euros.What are the effects on net income from these transactions?

Accepted Answer

A)  $20,000 Discount Expense plus a $12,000 positive Adjustment to Net Income when the merchandise is delivered. 
B)  $20,000 Discount Expense plus a $12,000 negative Adjustment to Net Income when the merchandise is delivered. 
C)  $20,000 Discount Expense plus a $20,000 negative Adjustment to Net Income when the merchandise is delivered. 
D)  $20,000 Discount Expense plus a $16,000 positive Adjustment to Net Income when the merchandise is delivered. 
E)  $20,000 Discount Expense plus a $20,000 positive Adjustment to Net Income when the merchandise is delivered. 
A)  $20,000 Discount Expense plus a $12,000 positive Adjustment to Net Income when the merchandise is delivered. 
B)  $20,000 Discount Expense plus a $12,000 negative Adjustment to Net Income when the merchandise is delivered. 
C)  $20,000 Discount Expense plus a $20,000 negative Adjustment to Net Income when the merchandise is delivered. 
D)  $20,000 Discount Expense plus a $16,000 positive Adjustment to Net Income when the merchandise is delivered. 
E)  $20,000 Discount Expense plus a $20,000 positive Adjustment to Net Income when the merchandise is delivered.

Question 7

A company has a discount on a forward contract for a foreign currency denominated asset.How is the discount recognized over the life of the contract under fair value hedge accounting?

Accepted Answer

A)  As a debit to discount expense. 
B)  As a debit to amortization expense. 
C)  As a debit to accumulated other comprehensive income. 
D)  As a debit impact on net income, as a result of the hedge. 
E)  As a decreases to sales. 
A)  As a debit to discount expense. 
B)  As a debit to amortization expense. 
C)  As a debit to accumulated other comprehensive income. 
D)  As a debit impact on net income, as a result of the hedge. 
E)  As a decreases to sales.

Question 8

Assuming a forward contract was entered into, the foreign currency was originally sold in the foreign currency market on December 16, 2018 at a

Accepted Answer

A)  Forward contract discount $ 600. 
B)  Forward contract premium $ 600. 
C)  Forward contract discount $ 980. 
D)  Forward discount premium $ 980. 
E)  There is no premium or discount because the fair value of the contract is zero. 
A)  Forward contract discount $ 600. 
B)  Forward contract premium $ 600. 
C)  Forward contract discount $ 980. 
D)  Forward discount premium $ 980. 
E)  There is no premium or discount because the fair value of the contract is zero.

Question 9

For what amount should Sales be credited on December 1?

Accepted Answer

A)  $ 5,500. 
B)  $16,949. 
C)  $18,182. 
D)  $17,241. 
E)  $16,667. 
A)  $ 5,500. 
B)  $16,949. 
C)  $18,182. 
D)  $17,241. 
E)  $16,667.

Question 10

(A.) Assume this hedge is designated as a fair value hedge.Prepare the journal entries relating to the transaction and the forward contract.
(B.) Compute the effect on 2018 net income.
(C.) Compute the effect on 2019 net income.

Accepted Answer

The answer of (A.) Assume this hedge is designated as...

Question 11

How much US $ will it cost Brisco to finally pay the payable on June 7?

Accepted Answer

A)  $1,666,667. 
B)  $2,440,000. 
C)  $2,520,000. 
D)  $2,500,000. 
E)  $2,400,000. 
A)  $1,666,667. 
B)  $2,440,000. 
C)  $2,520,000. 
D)  $2,500,000. 
E)  $2,400,000.

Question 12

How much Foreign Exchange Gain or Loss should Brisco record on May 31?

Accepted Answer

A)  $2,520,000 gain. 
B)  $ 20,000 gain. 
C)  $ 20,000 loss. 
D)  $ 80,000 gain. 
E)  $ 80,000 loss. 
A)  $2,520,000 gain. 
B)  $ 20,000 gain. 
C)  $ 20,000 loss. 
D)  $ 80,000 gain. 
E)  $ 80,000 loss.

Question 13

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

Accepted Answer

The answer of Assuming this is a fair value hedge;...

Question 14

A forward contract may be used for which of the following? 1) A fair value hedge of an asset.
2) A cash flow hedge of an asset.
3) A fair value hedge of a liability.
4) A cash flow hedge of a liability.

Accepted Answer

A)  1 and 3 
B)  2 and 4 
C)  1 and 2 
D)  1, 3, and 4 
E)  1, 2, 3, and 4 
A)  1 and 3 
B)  2 and 4 
C)  1 and 2 
D)  1, 3, and 4 
E)  1, 2, 3, and 4

Question 15

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

Accepted Answer

A)  $ 9,000 loss. 
B)  $ 9,000 gain. 
C)  $11,000 loss. 
D)  $13,000 gain. 
E)  $ 14,000 gain. 
A)  $ 9,000 loss. 
B)  $ 9,000 gain. 
C)  $11,000 loss. 
D)  $13,000 gain. 
E)  $ 14,000 gain.

Question 16

Which is a true statement regarding the fundamental requirement of accounting for derivatives?

Accepted Answer

A)  Derivatives are reported on the balance sheet only as an asset. 
B)  Derivatives are reported on the balance sheet only as a liability. 
C)  Changes in derivative cost basis are recorded in the asset value. 
D)  Changes in derivative fair value are included in comprehensive income. 
E)  Changes in derivative cost basis are recorded in the liability value. 
A)  Derivatives are reported on the balance sheet only as an asset. 
B)  Derivatives are reported on the balance sheet only as a liability. 
C)  Changes in derivative cost basis are recorded in the asset value. 
D)  Changes in derivative fair value are included in comprehensive income. 
E)  Changes in derivative cost basis are recorded in the liability value.

Question 17

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 18

Primo Inc., a U.S.company, ordered parts costing 100,000 rupee from a foreign supplier on July 7 when the spot rate was $.025 per rupee.A one-month forward contract was signed on that date to purchase 100,000 rupee at a rate of $.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 $.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 19

Assuming a forward contract was not entered into, what would be the net impact on Car Corp.'s 2018 income statement related to this transaction?

Accepted Answer

A)  $ 500 (gain). 
B)  $ 500 (loss). 
C)  $ 200 (gain). 
D)  $ 200 (loss). 
E)  $ - 0 - 
A)  $ 500 (gain). 
B)  $ 500 (loss). 
C)  $ 200 (gain). 
D)  $ 200 (loss). 
E)  $ - 0 -

Exam 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk

Which of the following is not a condition of accounting for hedge derivatives?

What amount will Coyote Corp.report in its 2018 income statement for Sales?

When a U.S.company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss?

A company has a discount on a forward contract for a foreign currency denominated asset.How is the discount recognized over the life of the contract under fair value hedge accounting?

Assuming a forward contract was entered into, the foreign currency was originally sold in the foreign currency market on December 16, 2018 at a

For what amount should Sales be credited on December 1?

(A.) Assume this hedge is designated as a fair value hedge.Prepare the journal entries relating to the transaction and the forward contract. (B.) Compute the effect on 2018 net income. (C.) Compute the effect on 2019 net income.

How much US $ will it cost Brisco to finally pay the payable on June 7?

How much Foreign Exchange Gain or Loss should Brisco record on May 31?

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

A forward contract may be used for which of the following? 1) A fair value hedge of an asset. 2) A cash flow hedge of an asset. 3) A fair value hedge of a liability. 4) A cash flow hedge of a liability.

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

Which is a true statement regarding the fundamental requirement of accounting for derivatives?

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

Assuming a forward contract was not entered into, what would be the net impact on Car Corp.'s 2018 income statement related to this transaction?

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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