Exam 11: Multinational Accounting: Foreign Currency Transactions and Financial Instruments

On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42. The rates are as follows: Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes. -Based on the preceding information,what is the net gain or loss on the British pound speculative contract?

On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42. The rates are as follows: Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes. -Based on the preceding information,what is the net gain or loss on the euro speculative contract?

Suppose the direct foreign exchange rates in U.S. dollars are as follows: 1 Swiss franc = $1.0371 1 Swedish krona = $0.1526 -Based on the information given above,the indirect exchange rates for the Swiss franc and the Swedish krona (from a U.S.perspective)are

Mint Corporation has several transactions with foreign entities.Each transaction is denominated in the local currency unit of the country in which the foreign entity is located.On October 1,20X8,Mint purchased confectionary items from a foreign company at a price of LCU 5,000 when the direct exchange rate was 1 LCU = $1.20.The account has not been settled as of December 31,20X8,when the exchange rate has decreased to 1 LCU = $1.10.The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:

On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42. The rates are as follows: Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes. -Based on the preceding information,what is the overall effect of speculation on 20X9 net income?

On December 1,20X8,Denizen Corporation entered into a 120-day forward contract to purchase 200,000 Canadian dollars (C$).Denizen's fiscal year ends on December 31.The forward contract was to hedge a firm commitment agreement made on December 1,20X8,to purchase electronic goods on January 30,with payment due on March 31,20X8.The derivative is designated as a fair value hedge.The direct exchange rates follow: Required: Prepare all journal entries for Denizen Corporation.

Upon arrival in Chile,Karen exchanged $1,000 of U.S.currency into 480,000 Chilean Pesos.While returning after her two month visit,she exchanged her remaining 50,000 Pesos into $100 of U.S.currency.What amount of gain or a loss did Karen experience on the 50,000 pesos she held during her visit and converted to U.S.dollars at the departure date?

Sphinx Co.(Sphinx)records its transactions in U.S.dollars.A sale of goods resulted in a receivable denominated in Japanese yen,and a purchase of goods resulted in a payable denominated in Euros.Sphinx recorded a foreign exchange transaction gain on collection of the receivable and an exchange transaction loss on the settlement of the payable.The exchange rates are expressed as so many units of foreign currency to one dollar.Did the number of foreign currency units exchangeable for a dollar increase or decrease between the contract and settlement dates?

Which of the following observations is true of futures contracts?

Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November 30, 20X8, AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4 per barrel, with a February 1, 20X9, call date. The following is the pricing information for the term of the call: The information for the change in the fair value of the options follows: On February 1, 20X9, AMAR sells the options at their value on that date and acquires 20,000 barrels of oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112 per barrel. -Based on the preceding information,which of the following entries will be required on February 1,20X9?

Company X issues variable-rate debt but wishes to fix its interest rates because it believes the variable rate may increase.Company Y has a fixed-rate bond but is looking for a variable-rate interest because it assumes the interest rates may decrease.The two companies agree to exchange cash flows.Such an arrangement is called:

Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1, 20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs. The forward contract is not designated as a hedge. The rates were as follows: -Based on the preceding information,the entries on December 31,20X8,include a:

On September 22,20X1,Yumi Corp.purchased merchandise from an unaffiliated foreign company for 10,000 units of the foreign company's local currency.On that date,the spot rate was $.55.Yumi paid the bill in full,six months later,on March 20,20X2,when the spot rate was $.65.The spot rate was $.70 on December 31,20X1.What amount should Yumi report as a foreign currency transaction loss in its income statement for the year ended December 31,20X1?

On September 1,20X1,Bain Corp.received an order for equipment from a foreign customer for 300,000 local currency units (LCU)when the U.S.dollar equivalent was $96,000.Bain shipped the equipment on October 15,20X1,and billed the customer for 300,000 LCU when the U.S.dollar equivalent was $100,000.Bain received the customer's remittance in full on November 16,20X1,and sold the 300,000 LCU for $105,000.In its income statement for the year ended December 31,20X1,Bain should report a foreign exchange gain of

Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November 30, 20X8, AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4 per barrel, with a February 1, 20X9, call date. The following is the pricing information for the term of the call: The information for the change in the fair value of the options follows: On February 1, 20X9, AMAR sells the options at their value on that date and acquires 20,000 barrels of oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112 per barrel. -Based on the preceding information,the entries made on April 1,20X9 will include:

Robert Company sold inventory to an Australian company for 50,000 Australian dollars on April 1, 20X0 with settlement to be in 60 days. On the same date, Robert entered into a 60-day forward contract to sell 50,000 Australian dollars at a forward rate of $1.164 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were as follows: -Based on the preceding information,what is the overall effect on net income of Robert's use of the forward exchange contract?

Mint Corporation has several transactions with foreign entities.Each transaction is denominated in the local currency unit of the country in which the foreign entity is located.On November 2,20X8,Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08.The account has not been settled as of December 31,20X8,when the exchange rate has increased to 1 LCU = $1.10.The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:

Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9 with settlement to be in 60 days. On the same date, Myway entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were: -Based on the preceding information,what is the overall effect on net income of Myway's use of the forward exchange contract?

Detroit based Auto Corporation,purchased ancillaries from a Japanese firm on December 1,20X8,for 1,000,000 Yen,when the spot rate for Yen was $.0095.On December 31,20X8,the spot rate stood at $.0096.On January 10,20X9 Auto paid 1,000,000 Yen acquired at a rate of $.0094.Auto's income statements should report a foreign exchange gain or loss for the years ended December 31,20X8 and 20X9 of:

Tinitoys, Inc., a domestic company, purchased inventory from a Brazilian company for 500,000 Brazilian reals (Br. reals) on May 1, 20X2. Payment is due on June 30, 20X2. On May 1, 20X2, Tinitoys also entered into a 60-day forward contract to purchase 500,000 Brazilian reals. The forward contract is not designated as a hedge. Tinitoys' fiscal year ends on May 31. The direct exchange rates were as follows: -Based on the preceding information,the entries on June 30,20X2,include a