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

On December 1,20X8,Winston Corporation acquired 10 deep discount bonds from Linked Corporation at a cost of $400 per bond.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 10 bonds at $400 per bond.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 bonds on February 20,20X9. -Based on the preceding information,which of the following journal entries will be made on February 20,20X9?

Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$)on January 1,20X9 with settlement to be in 60 days.On the same date,Myway entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable.The forward contract is not designated as a hedge.The spot rates were: -Based on the preceding information,what is the overall effect on net income of Myway's use of the forward exchange contract?

Spiraling 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?

Spiraling 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?

Upon arrival in Chile,Karen exchanged $1,000 of U.S.currency into 480,000 Chilean Pesos.While returning after her two-month visit,she exchanged her remaining 50,000 Pesos into $100 of U.S.currency.What amount of gain or a loss did Karen experience on the 50,000 pesos she held during her visit and converted to U.S.dollars at the departure date?

Which of the following observations is true of futures contracts?

On December 1,20X8,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 30,20X9.The purchase took place on January 30,with payment due on March 31,20X9.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.

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 200,000 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 related to the forward contract include a:

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:

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 200,000 Swiss francs.The forward contract is not designated as a hedge.The rates were as follows: -Based on the preceding information,the entries on December 31,20X8 related to the forward contract include a:

On December 1,20X8,Merry Corporation acquired 10 deep discount bonds of Venus Corporation at a cost of $600 per bond.Merry 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 $400,an at-the-money put option to sell the 10 bonds at $600 per bond.The option expires on February 20,20X9 and is properly designated as a hedge at the time of purchase.Selected information concerning the fair values of the investment and the options follow: Assume that Merry exercises the put option and sells Venus shares on February 20,20X9. Required: 1.Prepare the entries required on December 1,20X8,to record the purchase of the Venus bonds and the put options. 2.Prepare the entries required on December 31,20X8,to record the change in intrinsic value and time value of the options,as well as the revaluation of the available-for-sale securities. 3.Prepare the entries required on February 20,20X8,to record the exercise of the put option and the sale of the securities at that 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 net gain or loss on the euro speculative contract?

Mint Corporation has several transactions with foreign entities.Each transaction is denominated in the local currency unit of the country in which the foreign entity is located.On October 1,20X8,Mint purchased confectionary items from a foreign company at a price of LCU 5,000 when the direct exchange rate was 1 LCU = $1.20.The account has not been settled as of December 31,20X8,when the exchange rate has decreased to 1 LCU = $1.10.The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:

Suppose the direct foreign exchange rates in U.S.dollars are: 1 Singapore dollar = $0.7025 1 Cyprus pound = $2.5132 -Based on the information given above,the indirect exchange rates for the Singapore dollar and the Cyprus Pound (from a U.S.perspective)are:

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 baht.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?

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 31,20X8,before adjustments for the effects of changes in exchange rates during 20X8,follows: The spot rates on December 31,20X8,were: The average exchange rates during the collection and payment period in 20X9 are: Required: 1.Prepare the adjusting entries on December 31,20X8. 2.Record the collection of the accounts receivable and the payment of the accounts payable in 20X9. 3.What was the foreign currency gain or loss on the accounts receivable transaction denominated in SFr for the year ended December 31,20X8? For the year ended December 31,20X9? Overall for this transaction? 4.What was the foreign currency gain or loss on the accounts receivable transaction denominated in ¥? For the year ended December 31,20X8? For the year ended December 31,20X9? Overall for this transaction?

Corporation X has a number of exporting transactions with companies based in Vietnam.Exporting activities result in receivables.If the settlement currency is the US dollar,which of the following will happen by changes in the direct or indirect exchange rates?

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?

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£ = $.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: -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:

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£ = $.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: -Based on the preceding information,what is the entry required to settle foreign currency payable on December 2?