Exam 12: Derivatives and Foreign Currency: Concepts and Common Transactions

Behd Company,a U.S.firm,sold some of its inventory to Edinburgo Company,a company based in Scotland,on November 27,2014,when the local currency unit (the pound Sterling,"GBP")was trading at $1.64 : 1 GBP.The sales agreement called for Edinburgo to pay 140,000 GBP on January 26,2015.Additional exchange rates are shown below: Required: Show all related journal entries for Behd Company.

Plymouth Corporation (a U.S.company)began operations on September 1,2014,when the owner borrowed $250,000 to establish the business.Plymouth then had the following import and export transactions with unaffiliated Chinese companies: The following exchange rates apply: Required: 1.What were Sales in the September month-end income statement? 2.What was the COGS associated with these sales? 3.What is the Accounts Receivable balance in the balance sheet at September 30,2014? 4.What is the Inventory balance in the balance sheet at September 30,2014? 5.What is the Exchange gain or loss that will be reported for the month of September?

With respect to exchange rates,which of the following statements is true?

Use the following information to answer the question(s)below. On October 4,2014,Sooty Corporation borrowed 250,000 British pounds from a London bank,evidenced by an interest-bearing note payable due in one year.The note was payable in pounds.Exchange rates for pounds were: -What exchange gain or loss appeared on Sooty's 2014 income statement?

If a sale on account by a U.S.company is made with a foreign company,and the U.S.company has no foreign currency risk,then

Jefferson Company entered into a forward contract with Washington Company on October 1,2014,under which Jefferson agreed to buy (and Washington agreed to sell)10,000 tons of coal at $80.00 per ton in 90 days.On October 1,2014,the price of coal is $82.00 per ton.On December 29,2014,the price of coal is $85.00 per ton.The contract allows for net settlement. Required: Determine the net settlement on the forward contract.

Gains or losses on foreign currency transactions are recorded before the related receivable or payable is settled when

Use the following information to answer the question(s)below. On October 4,2014,Sooty Corporation borrowed 250,000 British pounds from a London bank,evidenced by an interest-bearing note payable due in one year.The note was payable in pounds.Exchange rates for pounds were: -What is the final amount of the loan payable that Sooty repaid?

Use the following information to answer the question(s)below. On November 1,2014,Rolleks Corporation sold merchandise to Watchem Corporation,a Swiss firm.Rolleks measured and recorded the account receivable from the sale at $107,100.Watchem paid for this account on November 30,2014.Spot rates for Swiss francs on November 1 and November 30,respectively,were $1.05 and $1.02. -If the sale of the merchandise was denominated in Swiss francs,the November 30 entry to record the receipt of payment from Watchem included a

In September of 2014,Gunny Corporation anticipates that the price of heating oil will increase soon,and wishes to lock in a firm price for the winter months.They enter into a forward contract with Selton Industries to buy 100,000 barrels of oil at $160 per barrel in December 2014.Selton's cost of production of the heating oil is $120 per barrel. Required: Determine the economic impact of the transaction to Selton (the seller of the heating oil)at the market price levels indicated in the table below,with and without the hedge.

On November 4,2014,the Oak Corporation,a U.S.corporation,purchased components for an assembly machine from Maple Industries,a Canadian Company,which were put into Parts Inventory.The purchase price was 80,000 Canadian dollars and Oak agreed to pay in Canadian dollars in 90 days.Both corporations are on a calendar year accounting period.Assume that the spot rates for the Canadian dollar on November 4,2014,December 31,2014,and February 2,2015,are $0.9985,$1.0191,and $1.0064,respectively. Required: Record the November 4,December 31,and February 2 transactions in the General Journals of Oak Corporation and Maple Industries.If no entry is required on a particular date,indicate "No entry" in the General Journal.

On November 14,2014,Scuby Company (a U.S.corporation)enters into a transaction which is denominated in the Canadian dollar.Assume the exchange rate at November 14 is $1.03,and at the December 31 year-end reporting date,the exchange rate is $1.07.On January 27,2015,when the transaction is settled,the exchange rate is $1.05.At the date of settlement,which of the following is correct?

Which of the following is a true statement regarding the recording of a transaction which involves foreign currency?

Charin Corporation,a U.S.corporation,imports and exports small electronics.On December 1,2014,Charin purchased components from an Egyptian manufacturer amounting to 500,000 Egyptian pounds.The purchase is payable in Egyptian pounds.At December 30,Charin wanted to take advantage of favorable exchange rates,but did not have the full amount required to pay off the entire amount.Charin wired the funds to pay off half of the balance owed,and expected to pay the remaining balance on January 3,2015.Charin paid the remaining balance on January 3,2015. The respective exchange rates were as follows: Required: Document the journal entries related to these transactions for the four dates shown.If no entry is required,record "no entry."

A review of Ace Industries,a U.S.corporation,shows the following balances in accounts receivable and accounts payable detail at September 30,2014,their fiscal year end. As Ace prepared to close their books,they noted that the September 30 exchange rates for the Australian dollar,Canadian dollar and Hong Kong dollar were $1.0366,$1.0301 and $0.1284,respectively. Required: Determine the exchange gain or loss to be included in the 2014 financial statements,and the amount of Accounts Receivable and Accounts Payable that will be included on the September 30,2014 balance sheet.

On November 1,2014,the Yankee Corporation,a US corporation,purchased and received an extruding machine from Wales Corporation,a UK company.The purchase price was $10,000(U.S.dollars)and Yankee agreed to pay in pounds on February 1,2015.Both corporations are on a calendar year accounting period.Assume that the spot rates for the British pound on November 1,2014,December 31,2014,and February 1,2015,are $1.60,$1.62,and $1.66,respectively. Required: Record the November 1,December 31,and February 1 transactions in the General Journals of Yankee Corporation and Wales Corporation.If no entry is required on a particular date,indicate "No entry" in the General Journal.

On December 5,2014,Unca Corporation,a U.S.firm,bought inventory items from Skagerrak Corporation of Norway for 1,000,000 Norwegian kroner when the spot rate for kroner was $0.166.The purchase was denominated in kroner.At Unca's fiscal year end,December 31,2014,the spot rate was $0.171.On January 4,2015,Unca purchased 1,000,000 kroner for $167,500 and paid the invoice.How much gain or (loss)did Unca report in its 2014 and 2015 income statements,respectively?

On April 1,2014,Button Industries enters into an agreement with Bows Incorporated to lock in the price of cotton.Button agrees to purchase (and Bows agrees to sell)100,000 pounds of cotton at $1.19 per pound,six months from the date of agreement.On October 1,2014,the price of cotton is $1.17 per pound.The contract allows for net settlement. Required: Determine the net settlement on the forward contract.

Cass Corporation's balance sheet at December 31,2014 included a $48,480 account receivable from Redmun Corporation of Mexico.The account receivable was denominated as 600,000 Mexican pesos.What entry did Cass make on January 16,2015 when the account receivable was collected and the exchange rate for the peso was $.09?

Meric Corporation (a U.S.company)began operations on January 1,2014,when the owner borrowed $150,000 to start the company.In the first month of operations,Meric had the following transactions: The following exchange rates apply: Required: Complete the summary income statement and balance sheet for the month ended January 31,2014 assuming there were no other transactions.