Question 1

U.S.GAAP provides guidance for hedges of all the following sources of foreign exchange risk except

Accepted Answer

A) Recognized foreign currency denominated assets and liabilities. 
B) Unrecognized foreign currency firm commitments. 
C) Forecasted foreign currency denominated transactions. 
D) Net investment in foreign operations. 
E) Deferred foreign currency gains and losses. 
A) Recognized foreign currency denominated assets and liabilities. 
B) Unrecognized foreign currency firm commitments. 
C) Forecasted foreign currency denominated transactions. 
D) Net investment in foreign operations. 
E) Deferred foreign currency gains and losses.

Question 2

Meisner Co.ordered parts costing §100,000 for a foreign supplier on May 12 when the spot rate was $.24 per stickle.A one-month forward contract was signed on that date to purchase §100,000 at a forward rate of $.25 per stickle.On June 12,when the parts were received and payment was made,the spot rate was $.28 per stickle.At what amount should inventory be reported?

Accepted Answer

A) $ 0. 
B) $28,000. 
C) $24,000. 
D) $25,000. 
E) $ 2,000. 
A) $ 0. 
B) $28,000. 
C) $24,000. 
D) $25,000. 
E) $ 2,000.

Question 3

On May 1, 2018, Mosby Company received an order to sell a machine to a customer in Canada at a price of 2,000,000 Mexican pesos.  The machine was shipped and payment was received on March 1, 2019.  On May 1, 2018, Mosby purchased a put option giving it the right to sell 2,000,000 pesos on March 1, 2019 at a price of $190,000.  Mosby properly designates the option as a fair value hedge of the peso firm commitment.  The option cost $3,000 and had a fair value of $3,200 on December 31, 2018.  The following spot exchange rates apply:
$$\begin{array} { | l | c | } 
\hline \text { Date } & \text { Spot Rate } \
\hline \text { May 1, 2018 } & \$ 0.095 \
\hline \text { December 31, 2018 } & \$ 0.094 \
\hline \text { March 1, 2019 } & \$ 0.089 \
\hline
\end{array}$$
Mosby’s incremental borrowing rate is 12 percent, and the present value factor for two months at a 12 percent annual rate is .9803.
-What was the overall result of having entered into this hedge of exposure to foreign exchange risk?

Accepted Answer

A) $0 
B) $9,000 net loss on the option. 
C) $9,000 net gain on the option. 
D) $2,000 net gain on the option. 
E) $2,000 net loss. 
A) $0 
B) $9,000 net loss on the option. 
C) $9,000 net gain on the option. 
D) $2,000 net gain on the option. 
E) $2,000 net loss.

Question 4

Which of the following statements is true concerning hedge accounting?

Accepted Answer

A) Hedges of foreign currency firm commitments are used for future sales only. 
B) Hedges of foreign currency firm commitments are used for future purchases only. 
C) Hedges of foreign currency firm commitments are used for current sales or purchases. 
D) Hedges of foreign currency firm commitments are used for future sales or purchases. 
E) Hedges of foreign currency firm commitments are entered into for speculative purposes. 
A) Hedges of foreign currency firm commitments are used for future sales only. 
B) Hedges of foreign currency firm commitments are used for future purchases only. 
C) Hedges of foreign currency firm commitments are used for current sales or purchases. 
D) Hedges of foreign currency firm commitments are used for future sales or purchases. 
E) Hedges of foreign currency firm commitments are entered into for speculative purposes.

Question 5

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2018:  
$$\begin{array} { | l | l | } 
\hline \text { Mar. 1 } & \text { Bought inventory costing } 60,000 \text { pesos on credit. } \
\hline \text { May 1 } & \text { Sold } 60 \% \text { of the invent ory for } 54,000 \text { pesos on credit. } \
\hline \text { Aug. 1 } & \text { Collected } 48,000 \text { pesos from customers } \
\hline \text { Sept. 1 } & \text { Paid } 36,000 \text { pesos to creditors } \
\hline
\end{array}$$
The appropriate exchange rates during 2018 were as follows:
$\begin{array} { | l | l | } 
\hline &  { \text { Exchange } } \
\hline{ \text { Date } } & \text { Rate } \
\hline \text { May } 1,2018 & \$ .20 = 1 \text { peso } \
\hline \text { August } 1,2018 & \$ .22 = 1 \text { peso } \
\hline \text { September } 1,2018 & \$ .23 = 1 \text { peso } \
\hline \text { December } 31,2018 & \$ .25 = 1 \text { peso } \
\hline
\end{array}$
-What amount will Coyote Corp.report in its 2018 income statement for Cost of goods sold?

Accepted Answer

Cost of goods sold (

Question 6

On October 1, 2018, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2019, at a price of 100,000 British pounds.  On October 1, 2018, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound.  The option is considered to be a cash flow hedge of a forecasted foreign currency transaction.  On December 31, 2018, the option has a fair value of $1,600.  The following spot exchange rates apply:
$$\begin{array} { | l | c | } 
\hline \text { Date } & \text { Spot Rate } \
\hline \text { October 1, 2018 } & \$ 2.00 \
\hline \text { December 31, 2018 } & \$ 1.97 \
\hline \text { February 1,2019 } & \$ 2.01 \
\hline
\end{array}$$
-What is the amount of option expense for 2019 from these transactions?

Accepted Answer

A) $1,000. 
B) $1,600. 
C) $2,500. 
D) $2,600. 
E) $ 0. 
A) $1,000. 
B) $1,600. 
C) $2,500. 
D) $2,600. 
E) $ 0.

Question 7

Mills Inc.had a receivable from a foreign customer that is due in the local currency of the customer (stickles).On December 31,2018,this receivable for §200,000 was correctly included in Mills' balance sheet at $132,000.When the receivable was collected on February 15,2019,the U.S.dollar equivalent was $144,000.In Mills' 2019 consolidated income statement,how much should have been reported as a foreign exchange gain?

Accepted Answer

A) $ 0. 
B) $36,000. 
C) $48,000. 
D) $10,000. 
E) $12,000. 
A) $ 0. 
B) $36,000. 
C) $48,000. 
D) $10,000. 
E) $12,000.

Question 8

A U.S.company buys merchandise from a foreign company denominated in U.S.dollars.Which of the following statements is true?

Accepted Answer

A) If the foreign currency appreciates,a foreign exchange gain will result. 
B) If the foreign currency depreciates,a foreign exchange gain will result. 
C) No foreign exchange gain or loss will result. 
D) If the foreign currency appreciates,a foreign exchange loss will result. 
E) Any gain or loss will be included in comprehensive income. 
A) If the foreign currency appreciates,a foreign exchange gain will result. 
B) If the foreign currency depreciates,a foreign exchange gain will result. 
C) No foreign exchange gain or loss will result. 
D) If the foreign currency appreciates,a foreign exchange loss will result. 
E) Any gain or loss will be included in comprehensive income.

Question 9

Woolsey Corporation, a U.S. company, expects to sell goods to a British customer at a price of 250,000 pounds, with delivery and payment to be made on October 24, 2018.  On July 24, 2018, Woolsey purchased a three-month put option for 250,000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction expected to be completed in late October, 2018.  The following exchange rates apply:
$$\begin{array} { | l | l | } 
\hline \text { Option strike price } & \$ 2.17 \
\hline \text { Option cost } & \$ 4,000 \
\hline \text { July 24 spot rate } & \$ 2.17 \
\hline \text { October 24 spot rate } & \$ 2.13 \
\hline \text { October 24 option premium } & \$ .04 \
\hline
\end{array}$$
-What amount will Woolsey include as Adjustment to Net Income for the period ended October 31?

Accepted Answer

A) $ 6,000 positive. 
B) $ 6,000 negative. 
C) $10,000 positive. 
D) $10,000 negative. 
E) $14,000 positive. 
A) $ 6,000 positive. 
B) $ 6,000 negative. 
C) $10,000 positive. 
D) $10,000 negative. 
E) $14,000 positive.

Question 10

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2018:  
$$\begin{array} { | l | l | } 
\hline \text { Mar. 1 } & \text { Bought inventory costing } 60,000 \text { pesos on credit. } \
\hline \text { May 1 } & \text { Sold } 60 \% \text { of the invent ory for } 54,000 \text { pesos on credit. } \
\hline \text { Aug. 1 } & \text { Collected } 48,000 \text { pesos from customers } \
\hline \text { Sept. 1 } & \text { Paid } 36,000 \text { pesos to creditors } \
\hline
\end{array}$$
The appropriate exchange rates during 2018 were as follows:
$\begin{array} { | l | l | } 
\hline &  { \text { Exchange } } \
\hline{ \text { Date } } & \text { Rate } \
\hline \text { May } 1,2018 & \$ .20 = 1 \text { peso } \
\hline \text { August } 1,2018 & \$ .22 = 1 \text { peso } \
\hline \text { September } 1,2018 & \$ .23 = 1 \text { peso } \
\hline \text { December } 31,2018 & \$ .25 = 1 \text { peso } \
\hline
\end{array}$
-What amount will Coyote Corp.report in its 2018 balance sheet for Accounts payable?

Accepted Answer

Accounts payable ((6

Question 11

Where can you find exchange rates between the U.S.dollar and most foreign currencies?

Accepted Answer

Foreign exchange rates are pub

Question 12

REFERENCE 07-03
Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2018, with payment of 10 million Korean won to be received on January 15, 2019.  The following exchange rates applied:
$\begin{array}{lrr}
&&\text { Forward }\
&\text { Spot } & \text { Rate }\
\text { Date }& \text { Rate } & \text { to Jan. } 15\
\text { December } 16,2018 & \$ .00092 & \$ .00098 \
\text { December } 31,2018 & .00090 & .00093 \
\text { January } 15,2019 & .00095 & .00095
\end{array}$

-Assuming a forward contract was entered into on December 16,at what amount should the forward contract be recorded at December 31,2018? Assume an annual interest rate of 12% and a fair value hedge.The present value for one month at 12% is .9901.

Accepted Answer

A) $ 200. 
B) $ 295. 
C) $ 495. 
D) $ 500. 
E) $ 9,300. 
A) $ 200. 
B) $ 295. 
C) $ 495. 
D) $ 500. 
E) $ 9,300.

Question 13

For speculative derivatives,the change in the fair value of the derivative must be:

Accepted Answer

A) Utilized to adjust the derivative asset. 
B) Recognized immediately as a gain or loss in net income. 
C) Recognized as a loss in other comprehensive income. 
D) Recognized as a gain in other comprehensive income. 
E) Recognized as a gain or loss in net income at a later date. 
A) Utilized to adjust the derivative asset. 
B) Recognized immediately as a gain or loss in net income. 
C) Recognized as a loss in other comprehensive income. 
D) Recognized as a gain in other comprehensive income. 
E) Recognized as a gain or loss in net income at a later date.

Question 14

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2018:  
$$\begin{array} { | l | l | } 
\hline \text { Mar. 1 } & \text { Bought inventory costing } 60,000 \text { pesos on credit. } \
\hline \text { May 1 } & \text { Sold } 60 \% \text { of the invent ory for } 54,000 \text { pesos on credit. } \
\hline \text { Aug. 1 } & \text { Collected } 48,000 \text { pesos from customers } \
\hline \text { Sept. 1 } & \text { Paid } 36,000 \text { pesos to creditors } \
\hline
\end{array}$$
The appropriate exchange rates during 2018 were as follows:
$\begin{array} { | l | l | } 
\hline &  { \text { Exchange } } \
\hline{ \text { Date } } & \text { Rate } \
\hline \text { May } 1,2018 & \$ .20 = 1 \text { peso } \
\hline \text { August } 1,2018 & \$ .22 = 1 \text { peso } \
\hline \text { September } 1,2018 & \$ .23 = 1 \text { peso } \
\hline \text { December } 31,2018 & \$ .25 = 1 \text { peso } \
\hline
\end{array}$
-What amount will Coyote Corp.report in its 2018 balance sheet for Inventory?

Accepted Answer

Inventory

Question 15

Which is a true statement regarding the fundamental requirement of accounting for derivatives?

Accepted Answer

A) Derivatives are reported on the balance sheet only as an asset. 
B) Derivatives are reported on the balance sheet only as a liability. 
C) Changes in derivative cost basis are recorded in the asset value. 
D) Changes in derivative fair value are included in comprehensive income. 
E) Changes in derivative cost basis are recorded in the liability value. 
A) Derivatives are reported on the balance sheet only as an asset. 
B) Derivatives are reported on the balance sheet only as a liability. 
C) Changes in derivative cost basis are recorded in the asset value. 
D) Changes in derivative fair value are included in comprehensive income. 
E) Changes in derivative cost basis are recorded in the liability value.

Question 16

On March 1, 2018, Mattie Company received an order to sell a machine to a customer in England at a price of 200,000 British pounds.  The machine was shipped and payment was received on March 1, 2019.  On March 1, 2018, Mattie purchased a put option giving it the right to sell 200,000 British pounds on March 1, 2019 at a price of $380,000.  Mattie properly designates the option as a fair hedge of the pound firm commitment.  The option cost $2,000 and had a fair value of $2,200 on December 31, 2018.  The following spot exchange rates apply:
$$\begin{array} { | l | c | } 
\hline \text { Date } & \text { Spot Rate } \
\hline \text { March 1, 2018 } & \$ 1.90 \
\hline \text { December 31, 2018 } & \$ 1.89 \
\hline \text { March 1, 2019 } & \$ 1.84 \
\hline
\end{array}$$
Mattie’s incremental borrowing rate is 12 percent, and the present value factor for two months at a 12 percent annual rate is .9803.
-What was the net impact on Mattie's 2019 income including the fair value hedge of a firm commitment?

Accepted Answer

A) $379,760.60 decrease. 
B) $ 8,360.60 increase. 
C) $ 8,360.60 decrease. 
D) $ 4,390.40 decrease. 
E) $379,760.60 increase. 
A) $379,760.60 decrease. 
B) $ 8,360.60 increase. 
C) $ 8,360.60 decrease. 
D) $ 4,390.40 decrease. 
E) $379,760.60 increase.

Question 17

On December 1,2018,Keenan Company,a U.S.firm,sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD).Collection of the receivable is due on February 1,2019.Keenan purchased a foreign currency put option with a strike price of $.97 (U.S. )on December 1,2018.This foreign currency option is designated as a cash flow hedge.Relevant exchange rates follow:
 $\begin{array}{|c|c|c|}
\hline \text { Date } & \text { Spot Rate } & \text { Option Premium } \
\hline \text { December 1, } 2018 & \$ .97 & \$ .05 \
\hline \text { December 31, } 2018 & \$ .95 & \$ .04 \
\hline \text { February 1, } 2019 & \$ .94 & \$ .03 \
\hline
\end{array}$

-Compute the fair value of the foreign currency option at February 1,2019.

Accepted Answer

A) $6,000. 
B) $4,500. 
C) $3,000. 
D) $7,500. 
E) $1,500. 
A) $6,000. 
B) $4,500. 
C) $3,000. 
D) $7,500. 
E) $1,500.

Question 18

On December 1,2018,Keenan Company,a U.S.firm,sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD).Collection of the receivable is due on February 1,2019.Keenan purchased a foreign currency put option with a strike price of $.97 (U.S. )on December 1,2018.This foreign currency option is designated as a cash flow hedge.Relevant exchange rates follow:
 $\begin{array}{|c|c|c|}
\hline \text { Date } & \text { Spot Rate } & \text { Option Premium } \
\hline \text { December 1, } 2018 & \$ .97 & \$ .05 \
\hline \text { December 31, } 2018 & \$ .95 & \$ .04 \
\hline \text { February 1, } 2019 & \$ .94 & \$ .03 \
\hline
\end{array}$

-Compute the fair value of the foreign currency option at December 31,2018.

Accepted Answer

A) $6,000. 
B) $4,500. 
C) $3,000. 
D) $7,500. 
E) $1,500. 
A) $6,000. 
B) $4,500. 
C) $3,000. 
D) $7,500. 
E) $1,500.

Question 19

Atherton,Inc. ,a U.S.company,expects to order goods from a foreign supplier at a price of 100,000 lira,with delivery and payment to be made on April 17.On January 17,Atherton purchased a three-month call option on 100,000 lira and designated this option as a cash flow hedge of a forecasted foreign currency transaction.The following exchange rates apply:
$$\begin{array} { l l } 
\text { Option Strike Price } & \$ 4.34 \
\text { Option Cost } & \$ 5,000 \
\text { January 17 Spot Rate } & \$ 4.34 \
\text { April 17 Spot Rate } & \$ 4.26
\end{array}$$

What amount will Atherton include as an option expense in net income for the period January 17 to April 17?

Accepted Answer

A) $4,000 
B) $4,260 
C) $4,340 
D) $5,000 
E) $5,260 
A) $4,000 
B) $4,260 
C) $4,340 
D) $5,000 
E) $5,260

U.S.GAAP provides guidance for hedges of all the following sources of foreign exchange risk except

Which of the following statements is true concerning hedge accounting?

A U.S.company buys merchandise from a foreign company denominated in U.S.dollars.Which of the following statements is true?

Where can you find exchange rates between the U.S.dollar and most foreign currencies?

For speculative derivatives,the change in the fair value of the derivative must be:

Which is a true statement regarding the fundamental requirement of accounting for derivatives?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements Intra-Entity Asset Transactions

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Translation of Foreign Currency Financial

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments, part I

Accounting for State and Local Governments, part II

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Exam 7: Foreign Currency Transactions and Hedging Foreign Exchange Risk

U.S.GAAP provides guidance for hedges of all the following sources of foreign exchange risk except

Which of the following statements is true concerning hedge accounting?

A U.S.company buys merchandise from a foreign company denominated in U.S.dollars.Which of the following statements is true?

Where can you find exchange rates between the U.S.dollar and most foreign currencies?

For speculative derivatives,the change in the fair value of the derivative must be:

Which is a true statement regarding the fundamental requirement of accounting for derivatives?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements Intra-Entity Asset Transactions

Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows, and Other Issues

Translation of Foreign Currency Financial

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments, part I

Accounting for State and Local Governments, part II

Filters