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

Cass Corporation's balance sheet at December 31, 2011 included a $48,480 account receivable from Redmun Corporation of Mexico.The account receivable was denominated as 600,000 Mexican pesos.What entry did Cass make on January 16, 2012 when the account receivable was collected and the exchange rate for the peso was $.09?

On October 15, 2011, Napole Corporation, a French company, ordered merchandise listed on the internet for 20,000 Euros from Adams Corporation, a U.S.corporation.The euro rate was $1.20 (U.S.dollars)on October 15.On November 15, 2011 Adams shipped the goods and billed Napole the purchase price of 20,000 Euros when the euro rate was $1.30.Napole paid the bill on December 10, 2011, and Adams immediately exchanged the 20,000 Euros for US dollars when the Euro rate was $1.28 on December 10, 2011. Required: Compute the foreign currency gain or loss on the December 31, 2011 financial statements of Adams and show the related journal entries.

Crabby Industries, a U.S.corporation, purchased inventory from a company in Sweden on November 18, 2011 when the Swedish krona was trading at 1 krona = $0.161.The transaction was for 600,000 krona, and was to be paid in krona in 90 days.Crabby closed their books at December 31 for financial reporting purposes when the krona was trading at $0.167.On February 16, 2012, Crabby paid the invoice when the krona was trading at $0.156. Required: Show the journal entries recorded by Crabby on November 18, 2011, December 31, 2011, and February 16, 2012.

On November 14, 2011, 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, 2012, when the transaction is settled, the exchange rate is $1.05.At the date of settlement, which of the following is correct?

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, 2011, and the net exchange gain or loss that would be reported as a result of year-end adjustments.

Plymouth Corporation (a U.S.company)began operations on September 1, 2011, when the owner borrowed $250,000 to establish the business.Plymouth then had the following import and export transactions with unaffiliated Chinese companies: 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, 2011? 4.What is the Inventory balance in the balance sheet at September 30, 2011? 5.What is the Exchange gain or loss that will be reported for the month of September?

Johnson Corporation (a U.S.company)began operations on December 1, 2010, when the owner contributed $100,000 of his own money to establish the business.Johnson then had the following import and export transactions with unaffiliated Mexican companies: Required: 1.What were Sales in the income statement for the year ended December 31, 2011? 2.What was the COGS associated with these sales? 3.What is the Accounts Payable balance in the balance sheet at December 31, 2011? 4.What is the Inventory balance in the balance sheet at December 31, 2011?

Which of the following statements is true regarding forward contracts, futures contracts, options and swaps?

A direct quote for the U.S.dollar is given at $1.45 per 1 foreign currency unit (fcu).The respective indirect quote for the U.S.dollar would be reported as

Ulysses Company purchases goods from China amounting to 372,372 Yuan (the transaction is denominated in the Chinese Yuan).Assume the Yuan is trading at $0.154 at the date the goods are ordered, and the Yuan is trading at $0.155 at the date the goods are received, and when the invoice is paid a month later, the Yuan is trading at $.156.Assume all three dates are in the same fiscal year.Which of the following is true?

Use the following information to answer the question(s) below. On November 1, 2010, Rolleks Corporation sold merchandise to Watchem Corporation, a Swiss firm. Rolleks measured and recorded the account receivable from the sale at $107,100. Watchem paid for this account on November 30, 2010. Spot rates for Swiss francs on November 1 and November 30, respectively, were $1.05 and $1.02. -If the sale of merchandise is denominated in dollars, the November 30 entry to record receipt of the payment from Watchem included a

On November 1, 2010, 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, 2011.Both corporations are on a calendar year accounting period.Assume that the spot rates for the British pound on November 1, 2010, December 31, 2010, and February 1, 2011, 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.

If a sale on account by a U.S.company is made with a foreign company, and the U.S.company has no foreign currency risk, then

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

Slade Corporation, a U.S.company, purchased materials on account from a manufacturer in Mexico on June 15.The invoice was denominated in the shipper's currency for 480,000 pesos.The goods were paid for on July 18.Slade closes their fiscal year on June 30, and used the following indirect quotes to measure the amounts related to the transactions. June 15 $1.00 = 12.50 pesos June 30 $1.00 = 12.80 pesos July 18 $1.00 = 12.00 pesos Required: Show all related journal entries for Slade Company.

On May 1, 2011, 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?

Charin Corporation, a U.S.corporation, imports and exports small electronics.On December 1, 2011, Charin purchased components from an Egyptian manufacturer amounting to 500,000 Egyptian pounds.The purchase is payable in Egyptian pounds.At December 30, Charin wanted to take advantage of favorable exchange rates, but did not have the full amount required to pay off the entire amount.Charin wired the funds to pay off half of the balance owed, and expected to pay the remaining balance on January 3, 2012.Charin paid the remaining balance on January 3, 2012. The respective exchange rates were as follows: Required: Document the journal entries related to these transactions for the four dates shown.If no entry is required, record "no entry."

Use the following information to answer the question(s) below. On November 1, 2010, Rolleks Corporation sold merchandise to Watchem Corporation, a Swiss firm. Rolleks measured and recorded the account receivable from the sale at $107,100. Watchem paid for this account on November 30, 2010. Spot rates for Swiss francs on November 1 and November 30, respectively, were $1.05 and $1.02. -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 November 4, 2011, 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, 2011, December 31, 2011, and February 2, 2012, 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.

The table below provides either a direct or indirect quote for a given foreign currency unit, and the related units of that foreign currency. Required: Complete the table, indicating the amount of U.S.Dollars that is the equivalent of the foreign currency shown, based on the direct or indirect quote provided.