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 effect of the euro speculative contract on 20X9 net income?

Spartan Company purchased interior decoration material from Egypt for 100,000 Egyptian pounds on September 5,20X8,with payment due on December 2,20X8.Additionally,on September 5,Spartan acquired a 90-day forward contract to purchase 100,000 Egyptian pounds of E $\le$ = $.1850.The forward contract was acquired to manage the exposed net liability position in Egyptian pounds,but it was not designated as a hedge.The spot rates were: September 5,20X8 E 1 = $0.1835 December 2,20X8 E 1 = $0.1865 -Based on the preceding information,what is the entry required to settle foreign currency payable on December 2?

On December 1,20X8,Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share.Winston classifies them as available-for-sale securities.On this same date,it decides to hedge against a possible decline in the value of the securities by purchasing,at a cost of $250,an at-the-money put option to sell the 100 shares at $40 per share.The option expires on February 20,20X9.Selected information concerning the fair values of the investment and the options follow: Assume that Winston exercises the put option and sells Linked shares on February 20,20X9. -Based on the preceding information,which of the following journal entries will be made on February 20,20X9?

On December 1,20X8,Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share.Winston classifies them as available-for-sale securities.On this same date,it decides to hedge against a possible decline in the value of the securities by purchasing,at a cost of $250,an at-the-money put option to sell the 100 shares at $40 per share.The option expires on February 20,20X9.Selected information concerning the fair values of the investment and the options follow: Assume that Winston exercises the put option and sells Linked shares on February 20,20X9. -Based on the preceding information,the journal entry made on December 31,20X8 to record decrease in the time value of the options will include:

Based on the preceding information,what was the overall foreign currency gain or loss on the accounts payable transaction? A.$300 loss B.$200 loss C.$100 gain D.$200 gain

Levin company entered into a forward contract to speculate in the foreign currency.It sold 100,000 foreign currency units under a contract dated November 1,20X8,for delivery on January 31,20X9: In its income statement for the year ended December 31,20X8,what amount of loss should Levin report from this forward contract?

Chicago based Corporation X has a number of importing transactions with companies based in UK.Importing activities result in payables.If the settlement currency is the British Pound,which of the following will happen by changes in the direct or indirect exchange rates?

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 5,20X8,Texas based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR),to be paid on January 10,20X9.The transaction is denominated in Saudi riyals.Imperial's fiscal year ends on December 31,and its reporting currency is the U.S.dollar.The exchange rates are: -Based on the preceding information,what journal entry would Imperial make on January 10,20X9,to revalue foreign currency payable to equivalent U.S.dollar value?

Which of the following observations is true of futures contracts?

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:

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:

On December 1,2008,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 an anticipated purchase of electronic goods on January 30,2009.The purchase took place on January 30,with payment due on March 31,2009.The derivative is designated as a cash flow hedge.The company uses the forward exchange rate to measure hedge effectiveness.The direct exchange rates follow: Required: Prepare all journal entries for Denizen Corporation.

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?

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 January 30,20X9,include a:

Quantum Company imports goods from different countries.Some transactions are denominated in U.S.dollars and others in foreign currencies.A summary of accounts receivable and accounts payable on December 31,2008,before adjustments for the effects of changes in exchange rates during 2008,follows: The spot rates on December 31,2008,were: The average exchange rates during the collection and payment period in 2009 are: Required: 1)Prepare the adjusting entries on December 31,2008. 2)Record the collection of the accounts receivable and the payment of the accounts payable in 2009. 3)What was the foreign currency gain or loss on the accounts receivable transaction denominated in SFr for the year ended December 31,2008? For the year ended December 31,2009? Overall for this transaction? 4)What was the foreign currency gain or loss on the accounts receivable transaction denominated in $\times$ ? For the year ended December 31,2008? For the year ended December 31,2009? Overall for this transaction?

On March 1,20X8,Wilson Corporation sold goods for a U.S.dollar equivalent of $31,000 to a Thai company.The transaction is denominated in Thai bahts.The payment is received on May 10.The exchange rates were: What entry is required to revalue foreign currency payable to U.S.dollar equivalent value on May 10?

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?

All of the following are management tools available for a U.S.company to hedge its net investment in a foreign affiliate except for:

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,in the entry to record the increase in the intrinsic value of the options on December 31,20X8,