Exam 7: Foreign Currency Transactions and Hedging Foreign Exchange Risk

On October 1, 2011, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2012, at a price of 100,000 British pounds. On October 1, 2011, 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, 2011, the option has a fair value of $1,600. The following spot exchange rates apply: What journal entry should Eagle prepare on December 31, 2011?

All of the following hedges are used for future purchase/sale transactions except

Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2011, with payment of 10 million Korean won to be received on January 15, 2012. The following exchange rates applied: Assuming a forward contract was entered into, the foreign currency was originally sold in the foreign currency market on December 16, 2011 at a

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2011: The appropriate exchange rates during 2011 were as follows: What amount will Coyote Corp. report in its 2011 balance sheet for Accounts payable?

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2011: The appropriate exchange rates during 2011 were as follows: The beginning balance of cash was 50,000 pesos on January 1, 2011, translated at 1 peso = $.18. What amount will Coyote Corp. report in its 2011 balance sheet for Cash?

Yelton Co. just sold inventory for 80,000 euros, which Yelton will collect in sixty days. Briefly describe a hedging transaction Yelton could engage in to reduce its risk of unfavorable exchange rates.

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2011: The appropriate exchange rates during 2011 were as follows: What amount will Coyote Corp. report in its 2011 balance sheet for Inventory?

Parker Corp., a U.S. company, had the following foreign currency transactions during 2011: (1)) Purchased merchandise from a foreign supplier on July 5, 2011 for the U.S. dollar equivalent of $80,000 and paid the invoice on August 3, 2011 at the U.S. dollar equivalent of $82,000. (2)) On October 1, 2011 borrowed the U.S. dollar equivalent of $872,000 evidenced by a non-interest-bearing note payable in euros on October 1, 2011. The U.S. dollar equivalent of the note amount was $860,000 on December 31, 2011, and $881,000 on October 1, 2012. What amount should be included as a foreign exchange gain or loss from the two transactions for 2012?

Williams, Inc., a U.S. company, has a Japanese yen account receivable resulting from an export sale on March 1 to a customer in Japan. The exporter signed a forward contract on March 1 to sell yen and designated it as a cash flow hedge of a recognized receivable. The spot rate was $.0094, and the forward rate was $.0095. Which of the following did the U.S. exporter report in net income?

On June 1, CamCo received a signed agreement to sell inventory for ¥500,000. The sale would take place in 90 days. CamCo immediately signed a 90-day forward contract to sell the yen as soon as they are received. The spot rate on June 1 was ¥1 =$.004167, and the 90-day forward rate was ¥1 = $.00427. At what amount would CamCo record the Forward Contract on June 1?

On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: Compute the fair value of the foreign currency option at December 1, 2011.

On April 1, 2010, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2011. The dollar value of the loan was as follows: How much foreign exchange gain or loss should be included in Shannon's 2011 income statement?

Larson Company, a U.S. company, has an India rupee account receivable resulting from an export sale on September 7 to a customer in India. Larson signed a forward contract on September 7 to sell rupees and designated it as a cash flow hedge of a recognized receivable. The spot rate was $.023, and the forward rate was $.021. Which of the following did the U.S. exporter report in net income?

Which of the following statements is true concerning hedge accounting?

Woolsey Corporation, a U.S. company, expects to sell goods to a British customer 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 put option for 250,000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction expected to be completed in late October. The following exchange rates apply: What amount will Woolsey include as an option expense in net income for the period July 24 to October 24?

On October 1, 2011, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2012, at a price of 100,000 British pounds. On October 1, 2011, 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, 2011, the option has a fair value of $1,600. The following spot exchange rates apply: What is the amount of Adjustment to Accumulated Other Comprehensive Income for 2012 from these transactions?

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

A spot rate may be defined as

On October 1, 2011, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2012, at a price of 100,000 British pounds. On October 1, 2011, 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, 2011, the option has a fair value of $1,600. The following spot exchange rates apply: What journal entry should Eagle prepare on October 1, 2011?

On October 1, 2011, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2012, at a price of 100,000 British pounds. On October 1, 2011, 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, 2011, the option has a fair value of $1,600. The following spot exchange rates apply: What is the amount of option expense for 2012 from these transactions?