Exam 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk

On October 1, 2013, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2014, at a price of 100,000 British pounds. On October 1, 2013, 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, 2013, 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 2014 from these transactions?

On October 1, 2013, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2014, at a price of 100,000 British pounds. On October 1, 2013, 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, 2013, the option has a fair value of $1,600. The following spot exchange rates apply: What is the amount of option expense for 2014 from these transactions?

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2013: The appropriate exchange rates during 2013 were as follows: What amount will Coyote Corp. report in its 2013 income statement for Cost of goods sold?

Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2013, with payment of 10 million Korean won to be received on January 15, 2014. The following exchange rates applied: Assuming a forward contract was entered into, at what amount should the forward contract be recorded at December 31, 2013? Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901.

Lawrence Company, a U.S. company, ordered parts costing 1,000,000 Thailand bahts from a foreign supplier on July 7 when the spot rate was $.025 per baht. A one-month forward contract was signed on that date to purchase 1,000,000 bahts at a rate of $.027. The forward contract is properly designated as a fair value hedge of the 1,000,000 baht firm commitment. On August 7, when the parts are received, the spot rate is $.028. What is the amount of accounts payable that will be paid at this date?

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: For what amount should Brisco's Accounts Payable be credited on May 8?

On October 1, 2013, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2014, at a price of 100,000 British pounds. On October 1, 2013, 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, 2013, the option has a fair value of $1,600. The following spot exchange rates apply: What is the 2014 effect on net income as a result of these transactions?

Alpha Inc., a U.S. company, had a receivable from a customer that was denominated in Mexican pesos. On December 31, 2012, this receivable for 75,000 pesos was correctly included in Alpha's balance sheet at $8,000. The receivable was collected on March 2, 2013, 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, 2013?

On April 1, Quality Corporation, a U.S. company, expects to sell merchandise to a French customer in three months, denominating the transaction in euros. On April 1, the spot rate is $1.41 per euro, and Quality enters into a three-month forward contract cash flow hedge to sell 400,000 euros at a rate of $1.36. At the end of three months, the spot rate is $1.37 per euro, and Quality delivers the merchandise, collecting 400,000 euros. What are the effects on net income from these transactions?

On October 1, 2013, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2014, at a price of 100,000 British pounds. On October 1, 2013, 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, 2013, the option has a fair value of $1,600. The following spot exchange rates apply: What journal entry should Eagle prepare on October 1, 2013?

U.S. GAAP provides guidance for hedges of all the following sources of foreign exchange risk except

How is the fair value of a Forward Contract determined by U.S. GAAP?

Norton Co., a U.S. corporation, sold inventory on December 1, 2013, 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 happens when a U.S. company sells goods denominated in a foreign currency and the foreign currency depreciates?

A company has a discount on a forward contract for a foreign currency denominated asset. How is the discount recognized over the life of the contract under fair value hedge accounting?

Norton Co., a U.S. corporation, sold inventory on December 1, 2013, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: For what amount should Sales be credited on December 1?

Winston Corp., a U.S. company, had the following foreign currency transactions during 2013: (1)) Purchased merchandise from a foreign supplier on July 16, 2013 for the U.S. dollar equivalent of $47,000 and paid the invoice on August 3, 2013 at the U.S. dollar equivalent of $54,000. (2)) On October 15, 2013 borrowed the U.S. dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15, 2013. The U.S. dollar equivalent of the note amount was $295,000 on December 31, 2013, and $299,000 on October 15, 2014. What amount should be included as a foreign exchange gain or loss from the two transactions for 2014?

When a U.S. company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss?

Coyote Corp. (a U.S. company in Texas) had the following series of transactions in a foreign country during 2013: The appropriate exchange rates during 2013 were as follows: What amount will Coyote Corp. report in its 2013 balance sheet for Accounts receivable?

A U.S. company sells merchandise to a foreign company denominated in U.S. dollars. Which of the following statements is true?