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

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

In September of 2011, 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 2011.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.

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

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

On September 1, 2011, Bylin Company purchased merchandise from Himeji Company of Japan for 20,000,000 yen payable on October 1, 2011.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, 2011. 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, 2011? 3.What journal entry did Bylin record on October 1, 2011?

Tank Corporation, a U.S.manufacturer, has a June 30 fiscal year end.Tank sold goods to their customer in Columbia on May 27, 2011 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."

On April 1, 2012, 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, 2012, the price of cotton is $1.17 per pound.The contract allows for net settlement. Required: Determine the net settlement on the forward contract.

On December 5, 2010, 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, 2010, the spot rate was $0.171.On January 4, 2011, Unca purchased 1,000,000 kroner for $167,500 and paid the invoice.How much gain or (loss)did Unca report in its 2010 and 2011 income statements, respectively?

Piel Corporation (a U.S.company)began operations on January 1, 2011, when common stock was issued for $250,000.In the first two months of operations, Piel had the following transactions: Required: Complete the summary income statement and balance sheet for the month ended January 31, 2011 and February 28, 2011, assuming there were no other transactions.

Use the following information to answer the question(s) below. On October 4, 2010, 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?

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.

Blue Corporation, a U.S.manufacturer, sold goods to their customer in Hungary on December 12, 2011 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, 2012, 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."

Behd Company, a U.S.firm, sold some of its inventory to Edinburgo Company, a company based in Scotland, on November 27, 2011, 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, 2012.Additional exchange rates are shown below: Required: Show all related journal entries for Behd Company.

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.

Use the following information to answer the question(s) below. On October 4, 2010, 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 2011 income statement?

Jefferson Company entered into a forward contract with Washington Company on October 1, 2011, 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, 2011, the price of coal is $82.00 per ton.On December 29, 2011, the price of coal is $85.00 per ton.The contract allows for net settlement. Required: Determine the net settlement on the forward contract.

With respect to exchange rates, which of the following statements is true?

A review of Ace Industries, a U.S.corporation, shows the following balances in accounts receivable and accounts payable detail at September 30, 2011, 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 2011 financial statements, and the amount of Accounts Receivable and Accounts Payable that will be included on the September 30, 2011 balance sheet.

Meric Corporation (a U.S.company)began operations on January 1, 2011, when the owner borrowed $150,000 to start the company.In the first month of operations, Meric had the following transactions: Required: Complete the summary income statement and balance sheet for the month ended January 31, 2011 assuming there were no other transactions.

Use the following information to answer the question(s) below. On October 4, 2010, 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 2010 income statement?