Question 1

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

Accepted Answer

Foreign exchange rates are pub

Question 2

What happens when a U.S.company purchases goods denominated in a foreign currency and the foreign currency appreciates?

Accepted Answer

The event

Question 3

REFERENCE: Ref.09_01
Norton Co. ,a U.S.corporation,sold inventory on December 1,2008,with payment of 10,000 British pounds to be received in sixty days.The pertinent exchange rates were as follows:  
-What amount of foreign exchange gain or loss should be recorded on January 30?

Accepted Answer

A) $1,516 gain. 
B) $1,516 loss. 
C) $575 loss. 
D) $500 loss. 
E) $500 gain. 
A) $1,516 gain. 
B) $1,516 loss. 
C) $575 loss. 
D) $500 loss. 
E) $500 gain.

Question 4

What is the major assumption underlying the one-transaction perspective?

Accepted Answer

The one-transaction perspectiv

Question 5

REFERENCE: Ref.09_04
On December 1,2007,Keenan Company,a U.S.firm,sold merchandise to Velez Company of Spain for 150,000 euro.Payment is due on February 1,2008.Keenan entered into a forward exchange contract on December 1,2007,to deliver 150,000 euro on February 1,2008 for $.97.Keenan chose to use a foreign currency option to hedge this foreign currency asset designated as a cash flow hedge.Relevant exchange rates follow:  
-Compute the value of the foreign currency option at December 1,2007.

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 6

REFERENCE: Ref.09_07
Winston Corp. ,a U.S.company,had the following foreign currency transactions during 2008:
(1. )Purchased merchandise from a foreign supplier on July 16,2008 for the U.S.dollar equivalent of $47,000 and paid the invoice on August 3,2008 at the U.S.dollar equivalent of $54,000.
(2. )On October 15,2008 borrowed the U.S.dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15,2008.The U.S.dollar equivalent of the note amount was $295,000 on December 31,2008,and $299,000 on October 15,2009.
-Primo Inc. ,a U.S.company,ordered parts costing 100,000 rupee from a foreign supplier on July 7 when the spot rate was $.025 per rupee.A one-month forward contract was signed on that date to purchase 100,000 rupee at a rate of $.027.The forward contract is properly designated as a fair value hedge of the 100,000 rupee firm commitment.On August 7,when the parts are received,the spot rate is $.028.At what amount should the parts inventory be carried on Primo's books?

Accepted Answer

A) $2,000. 
B) $2,100. 
C) $2,500. 
D) $2,700. 
E) $2,800. 
A) $2,000. 
B) $2,100. 
C) $2,500. 
D) $2,700. 
E) $2,800.

Question 7

REFERENCE: Ref.09_07
Winston Corp. ,a U.S.company,had the following foreign currency transactions during 2008:
(1. )Purchased merchandise from a foreign supplier on July 16,2008 for the U.S.dollar equivalent of $47,000 and paid the invoice on August 3,2008 at the U.S.dollar equivalent of $54,000.
(2. )On October 15,2008 borrowed the U.S.dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15,2008.The U.S.dollar equivalent of the note amount was $295,000 on December 31,2008,and $299,000 on October 15,2009.
-Woolsey Corporation,a U.S.company,expects to order goods from a British supplier at a price of 250,000 pounds,with delivery and payment to be made on October 24.On July 24,Woolsey purchased a three-month call option for 250,000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction.The following exchange rates apply:  
What amount will Woolsey include as an option expense in net income during the period July 24 to October 24?

Accepted Answer

A) $4,000. 
B) $5,000. 
C) $10,000. 
D) $12,000. 
E) $14,000. 
A) $4,000. 
B) $5,000. 
C) $10,000. 
D) $12,000. 
E) $14,000.

Question 8

REFERENCE: Ref.09_07
Winston Corp. ,a U.S.company,had the following foreign currency transactions during 2008:
(1. )Purchased merchandise from a foreign supplier on July 16,2008 for the U.S.dollar equivalent of $47,000 and paid the invoice on August 3,2008 at the U.S.dollar equivalent of $54,000.
(2. )On October 15,2008 borrowed the U.S.dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15,2008.The U.S.dollar equivalent of the note amount was $295,000 on December 31,2008,and $299,000 on October 15,2009.
-What amount should be included as a foreign exchange gain or loss from the two transactions for 2009?

Accepted Answer

A) $1,000 loss. 
B) $1,000 gain. 
C) $2,000 loss. 
D) $4,000 gain. 
E) $4,000 loss. 
A) $1,000 loss. 
B) $1,000 gain. 
C) $2,000 loss. 
D) $4,000 gain. 
E) $4,000 loss.

Question 9

REFERENCE: Ref.09_04
On December 1,2007,Keenan Company,a U.S.firm,sold merchandise to Velez Company of Spain for 150,000 euro.Payment is due on February 1,2008.Keenan entered into a forward exchange contract on December 1,2007,to deliver 150,000 euro on February 1,2008 for $.97.Keenan chose to use a foreign currency option to hedge this foreign currency asset designated as a cash flow hedge.Relevant exchange rates follow:  
-Alpha,Inc. ,a U.S.company,had a receivable from a customer that was denominated in pesos.On December 31,2008,this receivable for 75,000 pesos was correctly included in Alpha's balance sheet at $8,000.The receivable was collected on March 2,2009,when the U.S.equivalent was $6,900.How much foreign exchange gain or loss will Alpha record on the income statement for the year ended December 31,2009?

Accepted Answer

A) $1,100 loss. 
B) $1,100 gain. 
C) $6,900 loss. 
D) $6,900 gain. 
E) $8,000 gain. 
A) $1,100 loss. 
B) $1,100 gain. 
C) $6,900 loss. 
D) $6,900 gain. 
E) $8,000 gain.

Question 10

REFERENCE: Ref.09_02
Brisco Bricks purchases raw material from its foreign supplier,Bolivian Clay,on May 8.Payment of 2,000,000 foreign currency units (FC)is due in 30 days.May 31 is Brisco's fiscal year-end.The pertinent exchange rates were as follows:  
-How much Foreign Exchange Gain or Loss should Brisco record on May 31?

Accepted Answer

A) $2,520,000 gain. 
B) $20,000 gain. 
C) $20,000 loss. 
D) $80,000 gain. 
E) $80,000 loss. 
A) $2,520,000 gain. 
B) $20,000 gain. 
C) $20,000 loss. 
D) $80,000 gain. 
E) $80,000 loss.

Question 11

REFERENCE: Ref.09_11
Coyote Corp.(a U.S.company in Texas)had the following series of transactions in a foreign country during 2009.The appropriate exchange rates during 2009 were as follows:   The appropriate exchange rates during 2009 were as follows:
  
-What amount will Coyote Corp.report on its 2009 financial statements for Sales?

Accepted Answer

Sales (54,

Question 12

REFERENCE: Ref.09_03
Car Corp.(a U.S.-based company)sold parts to a Korean customer on December 16,2008,with payment of 10 million Korean won to be received on January 15,2009.The following exchange rates applied:
SHAPE \* MERGEFORMAT
  
-Which statement is true regarding a foreign currency option?

Accepted Answer

A) A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future. 
B) A foreign currency option gives the holder the obligation only sell foreign currency in the future. 
C) A foreign currency option gives the holder the obligation to only buy foreign currency in the future. 
D) A foreign currency option gives the holder the right but not the obligation to buy or sell foreign currency in the future. 
E) A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future at the spot rate. 
A) A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future. 
B) A foreign currency option gives the holder the obligation only sell foreign currency in the future. 
C) A foreign currency option gives the holder the obligation to only buy foreign currency in the future. 
D) A foreign currency option gives the holder the right but not the obligation to buy or sell foreign currency in the future. 
E) A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future at the spot rate.

Question 13

REFERENCE: Ref.09_02
Brisco Bricks purchases raw material from its foreign supplier,Bolivian Clay,on May 8.Payment of 2,000,000 foreign currency units (FC)is due in 30 days.May 31 is Brisco's fiscal year-end.The pertinent exchange rates were as follows:  
-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) $24,200. 
D) $25,000. 
E) $2,000. 
A) $0. 
B) $28,000. 
C) $24,200. 
D) $25,000. 
E) $2,000.

Question 14

Old Colonial Corp.(a U.S.company)made a sale to a foreign customer on September 15,2009,for 100,000 stickles.Payment was received on October 15,2009.The following exchange rates applied:
   
Required:
Prepare all journal entries for Old Colonial Corp.in connection with this sale assuming that the company closes its books on September 30 to prepare interim financial statements.

Accepted Answer

The answer of Old Colonial Corp.(a U.S.company)made a sale to...

Question 15

REFERENCE: Ref.09_08
On May 1,2007,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 1,2008.On May 1,2007,Mosby purchased a put option giving it the right to sell 2,000,000 pesos on March 1,2008 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 31,2007.The following spot exchange rates apply:   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 net impact on Mosby's 2008 income as a result of this fair value hedge of a firm commitment?

Accepted Answer

A) $1,760.60 decrease. 
B) $2,500 increase. 
C) $2,500 decrease. 
D) $188,760.60 increase. 
E) $188,760.60 decrease. 
A) $1,760.60 decrease. 
B) $2,500 increase. 
C) $2,500 decrease. 
D) $188,760.60 increase. 
E) $188,760.60 decrease.

Question 16

REFERENCE: Ref.09_10
On October 1,2007,Eagle Company forecasts the purchase of inventory from a British supplier on February 1,2008,at a price of 100,000 British pounds.On October 1,2007,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 31,2007,the option has a fair value of $1,600.The following spot exchange rates apply:  
-What journal entry should Eagle prepare on December 31,2007?

Accepted Answer

A) A above. 
B) B above. 
C) C above. 
D) D above. 
E) E above. 
A) A above. 
B) B above. 
C) C above. 
D) D above. 
E) E above.

Question 17

REFERENCE: Ref.09_03
Car Corp.(a U.S.-based company)sold parts to a Korean customer on December 16,2008,with payment of 10 million Korean won to be received on January 15,2009.The following exchange rates applied:
SHAPE \* MERGEFORMAT
  
-A U.S.company buys merchandise from a foreign company denominated in the foreign currency.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 loss 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 loss 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 18

REFERENCE: Ref.09_07
Winston Corp. ,a U.S.company,had the following foreign currency transactions during 2008:
(1. )Purchased merchandise from a foreign supplier on July 16,2008 for the U.S.dollar equivalent of $47,000 and paid the invoice on August 3,2008 at the U.S.dollar equivalent of $54,000.
(2. )On October 15,2008 borrowed the U.S.dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15,2008.The U.S.dollar equivalent of the note amount was $295,000 on December 31,2008,and $299,000 on October 15,2009.
-On August 31,Ram Corporation,a U.S.company,expects to order merchandise from a German supplier in three months,denominating the transaction in euros.On August 31,the spot rate is $1.19 per euro,and Quality enters into a three-month forward contract to purchase 600,000 euros at a rate of $1.20.At the end of three months,the spot rate is $1.21 per euro,and Ram orders and receives the merchandise,paying 600,000 euros.What are the effects on net income from these transactions?

Accepted Answer

A) $6,000 Discount Expense plus a $6,000 negative Adjustment to Net Income when the merchandise is sold. 
B) $ 6,000 Discount Expense plus a $12,000 negative Adjustment to Net Income when the merchandise is sold. 
C) $ 6,000 Premium Expense plus a $6,000 negative Adjustment to Net Income when the merchandise is sold. 
D) $ 12,000 Premium Expense plus a $6,000 positive Adjustment to Net Income when the merchandise is sold. 
E) $ 12,000 Discount Expense plus an $12,000 positive Adjustment to Net Income when the merchandise is sold. 
A) $6,000 Discount Expense plus a $6,000 negative Adjustment to Net Income when the merchandise is sold. 
B) $ 6,000 Discount Expense plus a $12,000 negative Adjustment to Net Income when the merchandise is sold. 
C) $ 6,000 Premium Expense plus a $6,000 negative Adjustment to Net Income when the merchandise is sold. 
D) $ 12,000 Premium Expense plus a $6,000 positive Adjustment to Net Income when the merchandise is sold. 
E) $ 12,000 Discount Expense plus an $12,000 positive Adjustment to Net Income when the merchandise is sold.

Question 19

REFERENCE: Ref.09_04
On December 1,2007,Keenan Company,a U.S.firm,sold merchandise to Velez Company of Spain for 150,000 euro.Payment is due on February 1,2008.Keenan entered into a forward exchange contract on December 1,2007,to deliver 150,000 euro on February 1,2008 for $.97.Keenan chose to use a foreign currency option to hedge this foreign currency asset designated as a cash flow hedge.Relevant exchange rates follow:  
-Compute the value of the foreign currency option at December 31,2007.

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 20

On October 31,2008,Darling Company negotiated a two-year 100,000 franc loan from a foreign bank at an interest rate of 3 percent per year.Interest payments are made annually on October 31,and the principal will be repaid on October 31,2010.Darling prepares U.S.-dollar financial statements and has a December 31 year-end.Prepare all journal entries related to this foreign currency borrowing assuming the following:

Accepted Answer

The answer of On October 31,2008,Darling Company negotiated a two-year...

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

What happens when a U.S.company purchases goods denominated in a foreign currency and the foreign currency appreciates?

REFERENCE: Ref.09_01 Norton Co. ,a U.S.corporation,sold inventory on December 1,2008,with payment of 10,000 British pounds to be received in sixty days.The pertinent exchange rates were as follows: -What amount of foreign exchange gain or loss should be recorded on January 30?

What is the major assumption underlying the one-transaction perspective?

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 - Intercompany Asset Transactions

Variable Interest Entities, intercompany Debt, consolidated Statement of Cash Flows, and Other Issues

Consolidated Financial Statements - Ownership Patterns and Income Taxes

Segment and Interim Reporting

Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Accounting Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments, Part I

Accounting for State and Local Governments,part II

Accounting for Not-For-Profit Organizations

Accounting for Estates and Trusts

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Exam 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk

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

What happens when a U.S.company purchases goods denominated in a foreign currency and the foreign currency appreciates?

REFERENCE: Ref.09_01 Norton Co. ,a U.S.corporation,sold inventory on December 1,2008,with payment of 10,000 British pounds to be received in sixty days.The pertinent exchange rates were as follows: -What amount of foreign exchange gain or loss should be recorded on January 30?

What is the major assumption underlying the one-transaction perspective?

REFERENCE: Ref.09_03 Car Corp.(a U.S.-based company)sold parts to a Korean customer on December 16,2008,with payment of 10 million Korean won to be received on January 15,2009.The following exchange rates applied: SHAPE \* MERGEFORMAT -Which statement is true regarding a foreign currency option?

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 - Intercompany Asset Transactions

Variable Interest Entities, intercompany Debt, consolidated Statement of Cash Flows, and Other Issues

Consolidated Financial Statements - Ownership Patterns and Income Taxes

Segment and Interim Reporting

Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Accounting Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments, Part I

Accounting for State and Local Governments,part II

Accounting for Not-For-Profit Organizations

Accounting for Estates and Trusts

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