Exam 10: Foreign Currency Transactions

On January 1, 2016, a U.S.firm bought a truck from a foreign firm for 10,000 FC, to be paid on March 1 in FC.The spot rate was 1 FC = $1.25 on January 1 and 1 FC = $1.265 on March 1.To protect themselves from exchange rate changes, the U.S.firm entered into a forward exchange contract on January 1 to buy FC on March 1 for $1.28. ​ Required: ​ Make all the necessary journal entries to record the transactions for the U.S.firm on January 1 and March 1.Ignore the split between spot gain/loss and time value.

The accounting treatment given a cash flow hedge of a forecasted transaction continues unless:

A transaction involving foreign currency will most likely result in gains and losses to the reporting entity if the

On 6/1/17, an American firm purchased inventory costing 100,000 Canadian Dollars from a Canadian firm to be paid for on 8/1/17.Also on 6/1/17, the American firm acquired an option for $1,500 to purchase 100,000 Canadian dollars for delivery on 8/1/17.The strike price for the option was $0.685.The exchange rates were as follows: ? Spot Option value 6/1/17 1=\ 0.68 \ 1,500 6/30/17 1=\ 0.70 \ 2,500 8/1/17 1=\ 0.73 \ 4,500 The American firm's fiscal year end is June 30, 2017.What is the net gain or loss recognized in the financial statements for the year ended June 30, 2017?

On 6/1/17, an American firm sold inventory costing 100,000 Euro from a Dutch firm with payment to be received on 8/1/17.Also on 6/1/17, the American firm acquired an option for $1,500 to sell 100,000 Euro on 8/1/17.The strike price for the option was $1.21.The exchange rates were as follows: ? Spot Option value 6/1/17 1=\ 1.20 \ 1,500 6/30/17 1=\ 1.19 \ 1,800 8/1/17 1=\ 1.15 \ 6,000 The American firm's fiscal year end is June 30, 2017.What is the net gain or loss recognized in the financial statements for the year ended June 30, 2017?

A bank dealing in foreign currency tells you that the foreign currency will buy you $.80 US dollars.The bank has given you

On 6/1/17, an American firm purchased an inventory costing 100,000 Canadian Dollars from a Canadian firm to be paid for on 8/1/17.Also on 6/1/17, the American firm entered into a forward contract to purchase 100,000 Canadian dollars for delivery on 8/1/17.The exchange rates were as follows: ? Spot Forward 6/1/17 1=\ 0.73 1=\ 0.74 6/30/17 1=\ 0.75 1=\ 0.76 8/1/17 1=\ 0.78 1=\ 0.78 The American firm's fiscal year end is 6/30/17.The changes in the value of the forward contract should be discounted at 8%.The transaction qualifies as for accounting as a cash flow hedge.What is the total amount that will be recognized in other comprehensive income in the year ended 6/30/17?

On 4/1/18, a U.S.Company commits to sell a piece of equipment to a French customer.At that time, the U.S.company enters into a forward contract to sell foreign currency on 8/1/18 (120 days).Delivery and payment will take place 8/1/18.The fiscal year end for the company is 6/30/18.The sales price of the equipment is 200,000 Euros.Various exchange rates are as follows: ? Spot Forward 4/1/18 1=\ 0.60 1=\ 0.58 6/30/18 1=\ 0.57 1=\ 0.56 8/1/18 1=\ 0.55 1=\ 0.55 Discount rate is 12%.What is the amount in the Firm Commitment account on 6/30/18?

Blue & Green, Inc.sold merchandise for 100,000 FC to a foreign vendor on December 1, 2020.Payment in FC is due January 31, 2021.On December 1, 2020, Blue & Green purchased an option for $500 to sell 100,000 FC at $1.45 on January 30, 2021.Exchange rates to sell 1 FC are as follows: ? Fiscal Year End is 12/31. Date Spot Rate Option Value 12/1/20 \ 1.45 \ 500 12/31/20 \ 1.43 \ 2,200 1/31/21 \ 1.41 \ 4,000 ? Required: ? Prepare the journal entries for December 1 through January 31 related to the events described above.Ignore Cost of Goods Sold.

Which of the following statements is true concerning forward contracts classified as hedges of an identifiable foreign currency commitment?

Exchange gains and losses on a forward exchange contract that covers the same time period as the transaction which it provides a fair value hedge for should be recognized as

In a credit transaction resulting in an exposed asset or liability, gains and losses on foreign currency transactions should be recognized:

A U.S.company that has purchased inventory from a German vendor would be exposed to a net exchange gain on the unpaid balance if the

Wild, Inc.sold merchandise for 500,000 FC to a foreign vendor on November 30, 2020.Payment in foreign currency is due January 31, 2021.Exchange rates to purchase 1 foreign currency unit are as follows: ? Nov. 30,2020 Dec. 31,2020 Jan. 31,2021 Spot \ 1.49 \ 1.45 \ 1.44 30 day \ 1.48 \ 1.43 \ 1.43 60 day \ 1.46 \ 1.41 \ 1.42 In the year in which the sale was made, 2020, what amount should Wild report as foreign exchange gain/loss from this transaction?

Larson, Inc.sold merchandise for 600,000 FC to a foreign vendor on November 30, 2020.Payment in foreign currency is due January 31, 2021.On the same day, Larson signed an agreement with a foreign exchange broker to sell 600,000 FC on January 31, 2021.Exchange rates to purchase 1 FC are as follows: ? Nov. 30,2020 Dec. 31,2020 Jan. 31,2021 Spot \ 1.49 \ 1.46 \ 1.43 30 day \ 1.48 \ 1.43 \ 1.44 60 day \ 1.47 \ 1.40 \ 1.42 What will be the recorded amount of the Forward Contract on November 30, 2020?

To qualify for fair value hedge accounting, a company must document all but:

The forward rate in a forward contract

Which of the following is not true about exchange rates?​

Which of the following does not represent an exchange risk on an exposed position to a company transacting business with a foreign vendor?​

Blue & Green, Inc.sold merchandise for 100,000 FC to a foreign vendor on December 1, 2020.Payment in FC is due January 31, 2021.On December 1, 2020, Blue & Green signed an agreement with a foreign exchange broker to sell 100,000 FC on January 30, 2021.Exchange rates to sell 1 FC are as follows: ? Fiscal Year End is 12/31; Discount rate = 12% Date Spot Rate Fwd. Rate 12/1/20 \ 1.45 \ 1.40 12/31/20 \ 1.43 \ 1.35 1/31/21 \ 1.41 \ 1.41 ? Required: ? Prepare the journal entries for December 1 through January 31 related to the events described above.Ignore Cost of Goods Sold.