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

On December 1,2008,Secure Company bought a 90-day forward contract to purchase 200,000 euros (€)at a forward rate of €1 = $1.35 when the spot rate was $1.33.Other exchange rates were as follows: Required 1)Prepare all journal entries related to Secure Company's foreign currency speculation from December 1,2008,through March 1,2009,assuming the fiscal year ends on December 31,2008. 2)Did the company gain or lose on its purchase of the forward contract?

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 a firm commitment agreement made on December 1,2008,to purchase electronic goods on January 30,with payment due on March 31,2008.The derivative is designated as a fair value hedge.The direct exchange rates follow: Required: Prepare all journal entries for Denizen Corporation.

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:

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 adjusting entries would be required on December 31,20X8?

Company X denominated a December 1,20X9,purchase of goods in a currency other than its functional currency.The transaction resulted in a payable fixed in terms of the amount of foreign currency,and was paid on the settlement date,January 10,2010.Exchange rates moved unfavorably at December 31,20X9,resulting in a loss that should: A.be included as a separate component of stockholders' equity at Dec.31,20X9. B.be included as a component of income from continuing operations for 20X9. C.be included as a deferred charge at December 31,20X9. D.not be reported until January 10,2010,the settlement date.

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 20X8 net income?