Exam 9: A: Foreign Currency Transactions and Hedging Foreign Exchange Risk

Atherton, Inc., a U.S.company, expects to order goods from a foreign supplier at a price of 100,000 lira, with delivery and payment to be made on April 17.On January 17, Atherton purchased a three-month call option on 100,000 lira and designated this option as a cash flow hedge of a forecasted foreign currency transaction.The following exchange rates apply: Option Strike Price $ 4.34 Option Cost $5,000 January 17 Spot Rate $ 4.34 April 17 Spot Rate $ 4.26 What amount will Atherton include as an option expense in net income for the period January 17 to April 17?

Larson Company, a U.S.company, has an India rupee account receivable resulting from an export sale on September 7 to a customer in India.Larson signed a forward contract on September 7 to sell rupees and designated it as a cash flow hedge of a recognized receivable.The spot rate was $.023, and the forward rate was $.021.Which of the following did the U.S.exporter report in net income?

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

How much foreign exchange gain or loss should be included in Shannon's 2017 income statement?

What amount will Coyote Corp.report in its 2018 income statement for Cost of goods sold?

On October 31, 2017, 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, 2019.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:

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)

What was the impact on Mosby's 2018 net income as a result of this fair value hedge of a firm commitment?

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?

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

A spot rate may be defined as

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?

Compute the fair value of the foreign currency option at December 1, 2018.

What journal entry should Eagle prepare on December 31, 2018?

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

For speculative derivatives, the change in the fair value of the derivative must be:

All of the following data may be needed to determine the fair value of a forward contract at any point in time except

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?

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

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