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

Crabby Industries, a U.S. corporation, purchased inventory from a company in Sweden on November 18, 2014 when the Swedish krona was trading at 1 krona = $0.161. The transaction was for 600,000 krona, and was to be paid in krona in 90 days. Crabby closed their books at December 31 for financial reporting purposes when the krona was trading at $0.167. On February 16, 2015, Crabby paid the invoice when the krona was trading at $0.156. Required: Show the journal entries recorded by Crabby on November 18, 2014, December 31, 2014, and February 16, 2015.

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 US 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.

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

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?

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

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.

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?

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."

Ulysses Company purchases goods from China amounting to 372,372 Yuan (the transaction is denominated in the Chinese Yuan). Assume the Yuan is trading at $0.154 at the date the goods are ordered, and the Yuan is trading at $0.155 at the date the goods are received. When the invoice is paid a month later, the Yuan is trading at $.156. Assume all three dates are in the same fiscal year. Which of the following is true?

Piel Corporation (a U.S. company) began operations on January 1, 2015, when common stock was issued for $250,000. In the first two months of operations, Piel had the following transactions: The following exchange rates apply: Required: Complete the summary income statement and balance sheet for the month ended January 31, 2015 and February 28, 2015, assuming there were no other transactions.

Johnson Corporation (a U.S. company) began operations on December 1, 2015, when the owner contributed $100,000 of his own money to establish the business. Johnson then had the following import and export transactions with unaffiliated Mexican companies: The following exchange rates apply: Required: 1. What were Sales in the income statement for the year ended December 31, 2015? 2. What was the COGS associated with these sales? 3. What is the Accounts Payable balance in the balance sheet at December 31, 2015? 4. What is the Inventory balance in the balance sheet at December 31, 2015?

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

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."

Tank Corporation, a U.S. manufacturer, has a June 30 fiscal year end. Tank sold goods to their customer in Columbia on May 27, 2014 for 18,000,000 Columbian pesos. The customer agreed to pay pesos in 60 days. When the customer wired the funds to Tank on July 26, Tank held them in their bank account until July 31 before selling them and converting them to U.S. dollars. The following exchange rates apply: Required: Record the journal entries related to the dates listed above. If no entry is required, state "no entry."

When the billing for a U.S. company's sale to a company in a foreign country is denominated in U.S. dollars, ________ is required when preparing journal entries for the sale.

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: January 3, 2014 Bought inventory for 100,000 Brazilian real on account. Must be paid with Brazilian real January 8, 2014 Sold 60% of inventory acquired on 1/3/14 for 32,000 British pounds on account. Invoice denominated in British pounds January 10, 2014 Paid $3,000 in other operating expenses January 23, 2014 Acquired and paid half of the Brazilian real owed to the Brazilian supplier January 28, 2014 Collected half of the 32,000 pounds from the customer in Great Britain and immediately converted them into U.S. dollars 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.

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.

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?

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

The table below provides either a direct or indirect quote for a given foreign currency unit, and the related units of that foreign currency. Required: Complete the table, indicating the amount of U.S. Dollars that is the equivalent of the foreign currency shown, based on the direct or indirect quote provided.