Exam 10: Foreign Currency Transactions

The following information refers to questions On July 1,2012 CDN purchased inventory from its main U.S.supplier RNB Enterprises at a cost of $1,000 U.S dollars.CDN's year end is on July 31. Some important dates regarding this transaction,as well as the exchange rates in effect at each of these dates are shown below: -At what amount would CDN record its Liability to RNB at the time of purchase?

IAS 39 on speculative forward exchange contracts requires that the contract be:

The following information pertains to questions On January 1,2013,Canadian Music International (CMI),a manufacturer of high-end recording equipment based in Toronto,shipped $120,000 worth of inventory to its main U.S.distributor in Chicago,with full payment of these goods to be paid by February 28,2013.CMI has a January 31 year end.A list of significant dates and exchange rates is shown below. The invoice price billed by CMI was $120,000 U.S. -What is the amount of CMI's foreign exchange gain or loss at year-end?

The following information pertains to questions RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN. In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank. Significant dates pertaining to this transaction are as follows: -What is the amount of RXN's foreign exchange gain or loss prior to its hedge?

Which of the following is NOT currently a cause of fluctuation in foreign exchange rates?

The following information pertains to questions On July 1,2014,when the spot rate was US$1=CDN$1.1445,North Inc,based in the Alberta,ordered merchandise from an American supplier for US$600,000.Delivery was scheduled for the month of September,with payment to be made in full by December31,2014. Once the order was placed,North entered into a forward contract with its bank to purchase US$600,000 in December at the forward rate of $1.1625CDN.The merchandise was received on October 1,2014,when the spot rate was US$1=$1.1575CDN.On October 31,the company's year-end,the spot rate was $1.1690.North purchased the U.S.dollars to pay its supplier on November 15,2014 when the spot rate was $1.1725CDN. -What is the amount of the Liability to the bank recorded on the commitment date?

The following information pertains to questions ABC Inc.sells thermal compressors throughout the world.On January 1,2013,the company sold 500 compressors to an American supplier at a total cost $60,000 U.S.when the spot rate was US$1=$1.1750CDN.Payment on the invoice was due by May 1,2013.ABC entered into a 4-month hedge with its bank at a forward rate of $1.20CDN on January 2,2013.ABC's year-end is on January 31,and on that date in 2013,the spot rate in effect was $1.1825CDN. ABC received payment from its supplier on May 1,2013 when the spot rate was US$1=$1.1975 CDN. -What is the required adjustment to ABC's accounts receivable at year-end as a result of this transaction?

Which statement is NOT correct?

The following information pertains to questions XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk. The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows: -What is the amount of interest expense (in Canadian Dollars)recorded for 2010?

The following information pertains to questions RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN. In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank. Significant dates pertaining to this transaction are as follows: -How much (in Canadian Dollars)will RXN expect to receive from the bank when its forward contract is settled?

The following information pertains to questions RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN. In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank. Significant dates pertaining to this transaction are as follows: -What adjustment (if any)would be required to RXN's year-end accounts receivable balance?

The rate charged by commercial banks for the purchase of any foreign currency (in Canadian dollars)on any given day would be based on which of the following?

The following information pertains to questions Prairie Dog Inc.borrowed $10,000,000 U.S.on January 1,2011 at an annual rate of 8%.The loan is due December 31,2014 and interest is payable annually each December 31.The exchange rates on selected dates throughout the life of the loan are shown below: -Prepare the journal entries for 2011.

The following information pertains to questions ABC Inc.sells thermal compressors throughout the world.On January 1,2013,the company sold 500 compressors to an American supplier at a total cost $60,000 U.S.when the spot rate was US$1=$1.1750CDN.Payment on the invoice was due by May 1,2013.ABC entered into a 4-month hedge with its bank at a forward rate of $1.20CDN on January 2,2013.ABC's year-end is on January 31,and on that date in 2013,the spot rate in effect was $1.1825CDN. ABC received payment from its supplier on May 1,2013 when the spot rate was US$1=$1.1975 CDN. -What is the amount of the premium on this contract?

Which of the following is correct?

The following information pertains to questions Compucat is a Canadian manufacturing company that produces inexpensive personal and laptop computers.The company has been generating progressively more of its sales from foreign markets.During 2013,the company started purchasing most of its components from a supplier in Germany. To deal with the uncertainty associated with foreign exchange fluctuations,all of Compucat's foreign currency denominated receivables and payables are hedged with contracts with the company's bank.Compucat's year-end is on December 31.The following transactions took place in 2013: On September 1,2013,Compucat purchased components from its German supplier for 100,000 Euros.On that date AMC entered into a forward contract for 100,000 Euros at the 60 day forward rate of 1Euro=$1.50 CDN.Compucat paid its supplier in full on December 1,2013. On December 1,2013 Compucat also shipped a batch of laptop computers to an American client for $250,000US.The invoice required that Compucat receive its payment in full by January 31,2013.On that date,the company entered into a forward contract for $250,000US at the two-month forward rate of $1US=$1.25CDN. The dates and exchange rates relevant to these transactions are shown below. -Prepare the 2013 journal entries to record the above transactions.In addition,prepare any adjusting journal entries that you deem necessary.

The following information pertains to questions XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk. The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows: -What is the amount of foreign exchange gain or loss recognized on the 2011 Income Statement?

The following information refers to questions On July 1,2012 CDN purchased inventory from its main U.S.supplier RNB Enterprises at a cost of $1,000 U.S dollars.CDN's year end is on July 31. Some important dates regarding this transaction,as well as the exchange rates in effect at each of these dates are shown below: -What would be the amount of the foreign exchange gain or loss recorded at the balance sheet date under the one-transaction approach?

The following information pertains to questions On January 1,2013,Canadian Music International (CMI),a manufacturer of high-end recording equipment based in Toronto,shipped $120,000 worth of inventory to its main U.S.distributor in Chicago,with full payment of these goods to be paid by February 28,2013.CMI has a January 31 year end.A list of significant dates and exchange rates is shown below. The invoice price billed by CMI was $120,000 U.S. -What is the amount of cash (in Canadian funds)received by CMI on the settlement date?

The following information pertains to questions Canada Corp.sells raw lumber to a number of countries around the world.On December 1,2013 the company shipped some lumber to a client in Japan.The selling price was established at 500,000 Yen with payment to be received on March 1,2014. On December 3,2013 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1Yen=$1.185CDN. Canada Corp received the payment from its Japanese client on March 1,2014.Canada Corp's year end is on December 31. Selected spot rates were as follows: -Prepare the journal entries to record the receipt of the 500,000 Yen on March 1,2014,assuming that Canada Corp did not enter into a hedge transaction in December 2013.