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

A U.S. importer that purchased merchandise from a South Korean firm would be exposed to a net exchange gain on the unpaid balance if the

The exchange rates between the Australian dollar and the U.S. dollar were as follows: This chart shows a

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.

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: -If a U.S. company is preparing a journal entry for a recent purchase, foreign-currency-denominated purchases must be measured in ________ at the purchase date using the foreign currency ________ rate on the purchase date.

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: September 6, 2014 Bought material inventory for 100,000 yuan on account. Invoice denominated in yuan September 18, 2014 Sold 80% of inventory acquired on 9/6/14 for 110,000 yuan on account. Invoice denominated in yuan October 5, 2014 Acquired and paid the 100,000 yuan owed to the Chinese supplier October 18, 2014 Collected the 110,000 yuan from the Chinese customer and immediately converted them into U.S. dollars 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?

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

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 May 1, 2014, Deerfield Corporation purchased merchandise from a German firm for 78,000 euros when the spot rate for the euro was 1.48 euro per dollar. The account payable was denominated in the euro. Deerfield settled the account on August 1 when the spot rate for the euro was 1.39 euro per dollar. How much cash will Deerfield have to disburse to settle the account?

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 is the final amount of the loan payable that Sooty repaid?

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

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.

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 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?

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.

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?

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. 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.

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.

If the sale of merchandise is denominated in dollars, the November 30 entry to record receipt of the payment from Watchem included a

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.