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

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. ACCOUNTS RECEIVABLE ACCOUNTS PAYABLE 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 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 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?

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: December 1,2014 1 pound =\ .170 December 30,2014 1 pound =\ .165 December 31,2014 1 pound =\ .175 January 3,2015 1 pound =\ .180 Required: Document the journal entries related to these transactions for the four dates shown.If no entry is required,record "no entry."

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

Lincoln Corporation,a U.S.manufacturer,both imports needed materials and exports finished products.Their receivables and payables are listed below,prior to year-end adjustments or preparation of the closing entries. Foreign Currency Units Rate at Date of Transaction Per Books in U.S. Dollars Current Rate at 12/31/14 ACCOUNTS RECEIVABLE Japanese yen 14,678,000 \ 0.0109007 160,000 \ 0.0120 Euros 50,000 1.2372 61,860 1.4235 Hungarian forint 50,000,000 0.0044 0.0053 TOTAL 441,860 ACCOUNTS PAYABLE Euros 50,000 1.2378 61,890 \ 1.4235 Mexican pesos 1,250,000 0.0790 99,875 0.0845 Indian rupee 4,000,000 0.0216 0.0223 TOTAL 248,165 Required: Determine the amount at which receivables and payables should be reported on December 31,2014,and the net exchange gain or loss that would be reported as a result of year-end adjustments.

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 2015 income statement?

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.

Blue Corporation,a U.S.manufacturer,sold goods to their customer in Hungary on December 12,2014 for 6,000,000 Hungarian forints.The customer agreed to pay in Hungarian forints in 30 days.When the customer wired the foreign currency to Blue on January 11,2015,Blue held them in their bank account until January 15 before selling them and converting them to U.S.dollars.The following exchange rates apply: Required: Record the journal entries that Blue would need related to the dates listed above.If no entry is required,state "no entry."

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

On October 15,2014,Napole Corporation,a French company,ordered merchandise listed on the internet for 20,000 Euros from Adams Corporation,a U.S.corporation.The euro rate was $1.20 (U.S.dollars)on October 15.On November 15,2014 Adams shipped the goods and billed Napole the purchase price of 20,000 Euros when the euro rate was $1.30.Napole paid the bill on December 10,2014,and Adams immediately exchanged the 20,000 Euros for U.S.dollars when the Euro rate was $1.28 on December 10,2014. Required: Compute the foreign currency gain or loss on the December 31,2014 financial statements of Adams and show the related journal entries.

Which of the following statements is true regarding forward contracts,futures contracts,options and swaps?

Slade Corporation,a U.S.company,purchased materials on account from a manufacturer in Mexico on June 15.The invoice was denominated in the shipper's currency for 480,000 pesos.The goods were paid for on July 18.Slade closes their fiscal year on June 30,and used the following indirect quotes to measure the amounts related to the transactions. June 15 $1.00 = 12.50 pesos June 30 $1.00 = 12.80 pesos July 18 $1.00 = 12.00 pesos Required: Show all related journal entries for Slade Company.

Gains and losses on foreign currency transactions can be deferred until the foreign currency is converted into U.S.dollars.

On November 1,2014,the Yankee Corporation,a U.S.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.

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?

On September 1,2014,Bylin Company purchased merchandise from Himeji Company of Japan for 20,000,000 yen payable on October 1,2014.The spot rate for yen was $0.0079 on September 1 and the spot rate was $0.0077 on October 1.The purchase was paid on October 1,2014. Required: 1.Did the U.S.dollar strengthen or weaken from September to October and what are the implications for Bylin's business? 2.What journal entry did Bylin record on September 1,2014? 3.What journal entry did Bylin record on October 1,2014?

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?

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.

A direct quote for the U.S.dollar is given at $1.45 per 1 foreign currency unit (fcu).The respective indirect quote for the U.S.dollar would be reported as