Question 1

What is a currency swap an example of?

Accepted Answer

A) A futures contract. 
B) A call option. 
C) A forward contract. 
D) A derivative instrument. 
A) A futures contract. 
B) A call option. 
C) A forward contract. 
D) A derivative instrument.

Question 2

The exchange rate in effect at the date of the transaction is called the spot exchange rate.

Accepted Answer

A) True 
 B)False

Question 3

On January 1, 2012, Gupta Inc. issued 10,000,000 Euros (€)of bonds payable. The bonds are due on December 31, 2014. Over the life of the bonds, the exchange rates were as follows: $$\begin{array} { | l | l | } 
\hline \text { January } 1,2012 & € 1 = \$ 1.40 \
\hline \text { December } 31,2012 & € 1 = \$ 1.45 \
\hline \text { December } 31,2013 & € 1 = \$ 1.50 \
\hline \text { December } 31,2014 & € 1 = \$ 1.48 \
\hline
\end{array}$$ What is the exchange gain (loss)recognized in income during 2013?

Accepted Answer

A) $(500,000) 
B) $500,000 
C) $1,000,000 
D) $(1,000,000) 
A) $(500,000) 
B) $500,000 
C) $1,000,000 
D) $(1,000,000)

Question 4

Using a _________ rate of exchange for all items appearing on the statement of financial position maintains the relationship in the retranslated financial statements (into the presentation currency)as that that existed in the foreign operation's financial statements (using the functional currency).

Accepted Answer

A) fluctuating 
B) constant 
C) spot 
D) closing 
A) fluctuating 
B) constant 
C) spot 
D) closing

Question 5

On March 1, 2013, Eddie Ltd. issued a purchase order to Liu Inc. to acquire a crane for $400,000 SGD. On the same day, Eddie entered into a forward contract to receive $400,000 SGD on July 31, 2013. The crane was delivered on June 1, 2013 and payment was made July 31, 2013. Eddie has an April 30 year-end. The following information has been provided: $\begin{array}{|l|c|c|}
\hline\text { Date } & \text { Spot Rate } & \frac{\text { Forward rate to July 31 }}{2013} \\hline \text { March } 1,2013 & .7686 & .7810 \
\hline \text { Apri1 } 30,2013 & .7702 & .7818 \
\hline \text { June } 1,2013 & .7940 & .7985 \
\hline \text { July } 31,2013 & .7995 & \mathrm{n} / \mathrm{a} \
\hline
\end{array}$ Assume that the transaction qualifies as a cash flow hedge. On March 1, at what amount should the forward contract be reported?

Accepted Answer

A) $312,400 
B) $317,600 
C) $0 
D) $319,800 
A) $312,400 
B) $317,600 
C) $0 
D) $319,800

Question 6

How does a company establish the currency in which its books and records should be maintained?

Accepted Answer

In order to identify the foreign exchang

Question 7

Under IFRS, which of the following statements about hedging a foreign currency risk of an accepted purchase order is TRUE?

Accepted Answer

A) It can be accounted for using either a fair-value hedge or a cash-flow hedge. 
B) It is not eligible for hedge accounting until it becomes an accounts payable. 
C) It must be accounted for using a fair-value hedge. 
D) It must be accounted for using a cash-flow hedge. 
A) It can be accounted for using either a fair-value hedge or a cash-flow hedge. 
B) It is not eligible for hedge accounting until it becomes an accounts payable. 
C) It must be accounted for using a fair-value hedge. 
D) It must be accounted for using a cash-flow hedge.

Question 8

On January 1, 2012, Crawford Inc. issued 10,000,000 Euros (€)of bonds payable. The bonds are due on December 31, 2014. Over the life of the bonds, the exchange rates were as follows: $\begin{array}{|l|l|}
\hline\text { January } 1,2012 & € 1=\$ 1.40 \
\hline \text { December } 31,2012 & € 1=\$ 1.45 \
\hline \text { December } 31,2013 & € 1=\$ 1.50 \
\hline \text { December } 31,2014 & € 1=\$ 1.48 \
\hline
\end{array}$ What is the exchange gain (loss)recognized in income during 2014?

Accepted Answer

A) $(200,000) 
B) $(800,000) 
C) $ 800,000 
D) $ 200,000 
A) $(200,000) 
B) $(800,000) 
C) $ 800,000 
D) $ 200,000

Question 9

Which of the following statements regarding the translation of financial statements from the "functional currency" to the "presentation currency" is FALSE?

Accepted Answer

A) Entities may choose to present their financial statements in any currency. 
B) Given the rising trend towards globalization, management may like to present their financial statements in a currency different from their functional currency in order to attract investors or because it is required by local law or other regulation. 
C) A company may display its statements in a language more relatable to a global marketplace used to viewing financial information denominated in a currency not functional to the entity. 
D) Any gain or loss on translation is considered part of income. 
A) Entities may choose to present their financial statements in any currency. 
B) Given the rising trend towards globalization, management may like to present their financial statements in a currency different from their functional currency in order to attract investors or because it is required by local law or other regulation. 
C) A company may display its statements in a language more relatable to a global marketplace used to viewing financial information denominated in a currency not functional to the entity. 
D) Any gain or loss on translation is considered part of income.

Question 10

A derivative instrument cannot be a hedged item.

Accepted Answer

A) True 
 B)False

Question 11

Monetary items are translated using the exchange rate at the balance sheet date.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements about hedge accounting is TRUE?

Accepted Answer

A) Hedge accounting is mandatory. 
B) Hedge accounting is applicable only if a receivable is being hedged. 
C) Hedge accounting is optional. 
D) Hedge accounting is applicable only if a liability is being hedged. 
A) Hedge accounting is mandatory. 
B) Hedge accounting is applicable only if a receivable is being hedged. 
C) Hedge accounting is optional. 
D) Hedge accounting is applicable only if a liability is being hedged.

Question 13

Hedge accounting is applicable only if a receivable is being hedged.

Accepted Answer

A) True 
 B)False

Question 14

At the balance sheet date, which of the following statements is TRUE?

Accepted Answer

A) Monetary items are translated using the exchange rate at the balance sheet date. Any resulting foreign exchange gain or loss is recorded in income. 
B) Monetary items are translated using the exchange rate at the balance sheet date. Any resulting foreign exchange gain or loss is recorded in other comprehensive income. 
C) Non-Monetary items are translated using the exchange rate at the balance sheet date. Any resulting foreign exchange gain or loss is recorded in income. 
D) Non-Monetary items are translated using the exchange rate at the balance sheet date. Any resulting foreign exchange gain or loss is recorded in other comprehensive income. 
A) Monetary items are translated using the exchange rate at the balance sheet date. Any resulting foreign exchange gain or loss is recorded in income. 
B) Monetary items are translated using the exchange rate at the balance sheet date. Any resulting foreign exchange gain or loss is recorded in other comprehensive income. 
C) Non-Monetary items are translated using the exchange rate at the balance sheet date. Any resulting foreign exchange gain or loss is recorded in income. 
D) Non-Monetary items are translated using the exchange rate at the balance sheet date. Any resulting foreign exchange gain or loss is recorded in other comprehensive income.

Question 15

Bommarito Corp., a Swiss firm, bought merchandise from Trilis Company of New Brunswick on December 15, 2013 for 20,000 CHF payable on January 14, 2014. Trilis and Bommarito both close their books on December 31. The 20,000 CHF was paid on January 14, 2014. The exchange rates for CHF were:
 December 15,2013 spot $\quad C \$ .9740$
December 15,2013 $\quad $30 day forward $\quad C \$ .9800$ 
December $31,2013 \quad \mathrm { C } \$ .9700$
December 31,2013 $\quad $14 day forward $\quad \mathrm { C } \$ 9730$
January $14,2014 \quad C \$ 9720$  Required: 
A)Provide the journal entries for Bommarito (the buyer)at each of the above dates, as required.
B)Provide the journal entries for Trilis Company (the seller)at each of the above dates as required.

Accepted Answer

A)
Note: All amounts

Question 16

Donka Co. does a lot of business in Australia. It has numerous trade accounts receivables and accounts payables that are to be settled in Australian dollars. What type of hedge does Donka have?

Accepted Answer

A) Natural hedge. 
B) Fair-value hedge. 
C) Cash-flow hedge. 
D) Hedge instrument. 
A) Natural hedge. 
B) Fair-value hedge. 
C) Cash-flow hedge. 
D) Hedge instrument.

Question 17

What is the purpose of derivative financial instruments? Provide some examples and explain how they work in practice.

Accepted Answer

Companies sometimes purchase derivative

What is a currency swap an example of?

The exchange rate in effect at the date of the transaction is called the spot exchange rate.

Using a _________ rate of exchange for all items appearing on the statement of financial position maintains the relationship in the retranslated financial statements (into the presentation currency)as that that existed in the foreign operation's financial statements (using the functional currency).

How does a company establish the currency in which its books and records should be maintained?

Under IFRS, which of the following statements about hedging a foreign currency risk of an accepted purchase order is TRUE?

Which of the following statements regarding the translation of financial statements from the "functional currency" to the "presentation currency" is FALSE?

A derivative instrument cannot be a hedged item.

Monetary items are translated using the exchange rate at the balance sheet date.

Which of the following statements about hedge accounting is TRUE?

Hedge accounting is applicable only if a receivable is being hedged.

At the balance sheet date, which of the following statements is TRUE?

Donka Co. does a lot of business in Australia. It has numerous trade accounts receivables and accounts payables that are to be settled in Australian dollars. What type of hedge does Donka have?

What is the purpose of derivative financial instruments? Provide some examples and explain how they work in practice.

Accounting for Investments

Business Combinations

Consolidation: Wholly Owned Subsidiaries

Consolidations: Intragroup Transactions

Consolidation: Non-Controlling Interest

Accounting for Investments in Associates and Joint Ventures

Accounting for Foreign Investments

Reporting for Not-For-Profit Organizations

Reporting for Public Sector Entities

Filters

Exam 7: Accounting for Foreign Currency

What is a currency swap an example of?

The exchange rate in effect at the date of the transaction is called the spot exchange rate.

Using a _________ rate of exchange for all items appearing on the statement of financial position maintains the relationship in the retranslated financial statements (into the presentation currency)as that that existed in the foreign operation's financial statements (using the functional currency).

How does a company establish the currency in which its books and records should be maintained?

Under IFRS, which of the following statements about hedging a foreign currency risk of an accepted purchase order is TRUE?

Which of the following statements regarding the translation of financial statements from the "functional currency" to the "presentation currency" is FALSE?

A derivative instrument cannot be a hedged item.

Monetary items are translated using the exchange rate at the balance sheet date.

Which of the following statements about hedge accounting is TRUE?

Hedge accounting is applicable only if a receivable is being hedged.

At the balance sheet date, which of the following statements is TRUE?

Donka Co. does a lot of business in Australia. It has numerous trade accounts receivables and accounts payables that are to be settled in Australian dollars. What type of hedge does Donka have?

What is the purpose of derivative financial instruments? Provide some examples and explain how they work in practice.

Accounting for Investments

Business Combinations

Consolidation: Wholly Owned Subsidiaries

Consolidations: Intragroup Transactions

Consolidation: Non-Controlling Interest

Accounting for Investments in Associates and Joint Ventures

Accounting for Foreign Investments

Reporting for Not-For-Profit Organizations

Reporting for Public Sector Entities

Filters