Question 1

What is the exchange rate in effect at the date of the transaction called?

Accepted Answer

A) Closing rate 
B) Spot rate 
C) Forward rate 
D) Settlement rate 
A) Closing rate 
B) Spot rate 
C) Forward rate 
D) Settlement rate

Question 2

Helvetia Corp., a Swiss firm, bought merchandise from Bouchard Company of Quebec on December 15, 20X7, for 20,000 CHF, payable on January 14, 20X8. Bouchard and Helvetia both close their books on December 31. The 20,000 CHF was paid on January 14, 20X8. The exchange rates for CHF1 were:
 $\begin{array}{ll}
\text { December } 15,20X7 \text { spot } & C \$ .9740 \
\text { December } 15,20X7\text { 30-day forward } & C \$ 9800 \
\text { December } 31,20X7 & C \$ .9700 \
\text { December } 31,20X7 \text { 14-day forward } & C \$ .9730 \
\text { lanuary } 14,20 \times 8 & C \$ .9720
\end{array}$
 The account was hedged by Bouchard through a 30-day forward contract. Bouchard uses the gross method to record hedge transactions. Bouchard reports under IFRS.
- Required:
1. Provide the journal entries for Bouchard (the seller)at each of the above dates, as required. The account was not hedged by Bouchard.
2. What is hedging and why might Bouchard have decided not to hedge this transaction? What risk is Bouchard incurring?

Accepted Answer

2. Hedging is a practice used to mitigat

Question 3

Where is the ineffective portion of a cash-flow hedge recognized on the financial statements?

Accepted Answer

A) As part of net income 
B) As part of other comprehensive income 
C) As a separate component of equity 
D) It does not appear on the financial statements. 
A) As part of net income 
B) As part of other comprehensive income 
C) As a separate component of equity 
D) It does not appear on the financial statements.

Question 4

What is the effect of fluctuations in exchange rates on accounts payable?

Accepted Answer

A) Deferred and amortized 
B) Deferred to maturity 
C) Recognized immediately in income 
D) Recognized if losses, deferred if gains 
A) Deferred and amortized 
B) Deferred to maturity 
C) Recognized immediately in income 
D) Recognized if losses, deferred if gains

Question 5

On June 1, 20X4, Chua (Canada)Co. entered into a 90-day forward contract to sell $500,000 Singapore dollars (SGD)to its bank on August 29, 20X4. The following information has been provided: 
June 1, 90-day forward rate SGD$1 = $0.7750
July 1, 60-day forward rate SGD$1 = $0.7630
August 29, spot rate SGD$1 = $0.748
-
Chua has a June 30 year-end. What is the net exchange gain (loss)on the contract?

Accepted Answer

A) $(13,500) 
B) $(6,000) 
C) $6,000 
D) $13,500 
A) $(13,500) 
B) $(6,000) 
C) $6,000 
D) $13,500

Question 6

Exchange gains and losses on accounts receivable/payable that are denominated in a foreign currency are ________.

Accepted Answer

A) deferred and reported upon settlement 
B) reported as adjustments to the transaction prices 
C) reported as equity adjustments from translation 
D) recognized in the periods in which exchange rates change 
A) deferred and reported upon settlement 
B) reported as adjustments to the transaction prices 
C) reported as equity adjustments from translation 
D) recognized in the periods in which exchange rates change

Question 7

Which of the following statements about hedge accounting is true?

Accepted Answer

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

Question 8

On December 1, 20X5, Gillard Ltd. sold goods to International Traders Ltd., a company located in Switzerland, for 500,000 Swiss francs (CHF). At the date of sale, the spot rate was CHF1 = $1.0329. On the same date, Gillard acquired a 90-day forward contract at a rate of CHF1 = $1.0315. On March 1, 20X6, Gillard received full payment from International Traders and delivered the Swiss francs in execution of the forward contract. The spot rate at March 1, 20X6, was CHF1 = $1.0287. 
-What is the net exchange gain (loss)on the forward contract?

Accepted Answer

A) $(2,100) 
B) $(700) 
C) $700 
D) $1,400 
A) $(2,100) 
B) $(700) 
C) $700 
D) $1,400

Question 9

On March 1, 20X2, McBride Ltd. issued a purchase order to Tao Heavy Machines (Singapore)Inc. to acquire a drilling machine for $400,000 SGD. On the same day, McBride entered into a forward contract to receive $400,000 SGD on July 31, 20X2. The machine was delivered on June 1, 20X2, and payment was made July 31, 20X2. McBride has an April 30 year-end. The following information has been provided: $\begin{array}{|l|c|c|}
\hline \text { Date } & \text { Spot Rate } & \text { Forward rate to July } 31,20 \times 2 \
\hline \text { March } 1,20 \times 2 & .7686 & .7810 \
\hline \text { April } 30,20 \times 2 & .7702 & .7818 \
\hline \text { June } 1,20 \times 2 & .7940 & .7985 \
\hline \text { July } 31,20 \times 2 & .7995 & \text { n/a }\
\hline 
\end{array}$
 
- Assume that the transaction qualifies as a cash-flow hedge. What is the net exchange gain (loss)that McBride should recognize in the period from May 1 to July 31, 20X2?

Accepted Answer

A) $(2,200) 
B) $(1,800) 
C) $ 0 
D) $400 
A) $(2,200) 
B) $(1,800) 
C) $ 0 
D) $400

What is the exchange rate in effect at the date of the transaction called?

Where is the ineffective portion of a cash-flow hedge recognized on the financial statements?

What is the effect of fluctuations in exchange rates on accounts payable?

Exchange gains and losses on accounts receivable/payable that are denominated in a foreign currency are ________.

Which of the following statements about hedge accounting is true?

Setting the Stage

Intercorporate Equity Investments: an Introduction

Business Combinations

Appendix A: AIncome Tax Allocation

Wholly Owned Subsidiaries: Reporting Subsequent Acquisitions

Appendix A: Wholly Owned Subsidiaries: Reporting Subsequent Acquisitions

Appendix B: Wholly Owned Subsidiaries: Reporting Subsequent Acquisitions

Consolidation of Non-Wholly Owned Subsidiaries

Appendix A: Step Purchases

Appendix B: Decreases in Ownership Interest

Subsequent-Year Consolidations: General Approach

Appendix A: Preferred and Restricted Shares of Investee Corporation

Appendix B: Intercompany Bond Holdings

Segment and Interim Reporting

Reporting Foreign Operations

Financial Reporting for Not-For-Profit Organizations

Appendix A: Fund Accounting

Public Sector Financial Reporting

Filters

Exam 8: Foreign Currency Transactions and Hedges

What is the exchange rate in effect at the date of the transaction called?

Where is the ineffective portion of a cash-flow hedge recognized on the financial statements?

What is the effect of fluctuations in exchange rates on accounts payable?

Exchange gains and losses on accounts receivable/payable that are denominated in a foreign currency are ________.

Which of the following statements about hedge accounting is true?

Setting the Stage

Intercorporate Equity Investments: an Introduction

Business Combinations

Appendix A: AIncome Tax Allocation

Wholly Owned Subsidiaries: Reporting Subsequent Acquisitions

Appendix A: Wholly Owned Subsidiaries: Reporting Subsequent Acquisitions

Appendix B: Wholly Owned Subsidiaries: Reporting Subsequent Acquisitions

Consolidation of Non-Wholly Owned Subsidiaries

Appendix A: Step Purchases

Appendix B: Decreases in Ownership Interest

Subsequent-Year Consolidations: General Approach

Appendix A: Preferred and Restricted Shares of Investee Corporation

Appendix B: Intercompany Bond Holdings

Segment and Interim Reporting

Reporting Foreign Operations

Financial Reporting for Not-For-Profit Organizations

Appendix A: Fund Accounting

Public Sector Financial Reporting

Filters