Exam 10: Foreign Currency Transactions

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: -At what amount (in Canadian Dollars)would the forward contract with the bank be recorded?

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: -By what amount (in Canadian Dollars)would ABC have to adjust its Loan Liability on December 31,2011 as a result of the year's foreign exchange rate fluctuations?

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 journal entry required to record the ordering of North's merchandise?

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 premium on the forward contract?

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 December 31,2013 Balance Sheet Presentation of the Receivable from the American client and the accounts associated with the hedge.

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: -Calculate the exchange gains or losses that would be reported in the net income of the company for each year over the life of the loan.

The following information pertains to questions On July 1,2013,Great White North (GWN)Inc.purchased merchandise from a supplier in the U.S.for $800,000 with terms requiring full payment by October 31,2013.On July 2,GWN entered into a forward contract to purchase $800,000 U.S.on October 31,2013 at a rate of $1.2275CDN. On October 31,GWN paid its supplier in full.Selected dates and spot rates are shown below: -Prepare any and all Journal Entries you deem necessary to record the above transaction.

Which of the following statements accurately describes the manner in which transactions must be translated under IAS 21?

The following information pertains to questions On January 1,2011,GRL Inc.purchased,in U.S.Funds $500,000 of Bonds of the OBY Company.On that date,the Bonds were trading at par.These Bonds pay 10% interest annually each December 31.The Bonds mature on December 31,2013.The following exchange rates were applicable between 2011 and 2013.The rates indicate the cost (in Canadian dollars)of purchasing 1 U.S.dollar: -Prepare GRL's journal entries for each of 2011,2012 and 2013.

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 forward contract in Canadian dollars?

Which of the following statements is correct?

The following information pertains to questions On July 1,2013,Great White North (GWN)Inc.purchased merchandise from a supplier in the U.S.for $800,000 with terms requiring full payment by October 31,2013.On July 2,GWN entered into a forward contract to purchase $800,000 U.S.on October 31,2013 at a rate of $1.2275CDN. On October 31,GWN paid its supplier in full.Selected dates and spot rates are shown below: -Prepare a July 31,2013 Partial Trial Balance,indicating how each Journal Entry would appear on the Financial Statements.

Prepare a partial Balance Sheet for Maplehauff Inc.on December 31,2012 showing the Account Receivable from the American client as well as the accounts associated with the hedge.

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: -By what amount (in Canadian Dollars)would ABC have to adjust its Loan Liability on December 31,2010 as a result of the year's foreign exchange rate fluctuations?

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 settlement date?

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 amount (in Canadian dollars)did North pay to its American supplier for the purchase of the inventory?

The following information pertains to questions On January 1,2011,GRL Inc.purchased,in U.S.Funds $500,000 of Bonds of the OBY Company.On that date,the Bonds were trading at par.These Bonds pay 10% interest annually each December 31.The Bonds mature on December 31,2013.The following exchange rates were applicable between 2011 and 2013.The rates indicate the cost (in Canadian dollars)of purchasing 1 U.S.dollar: -Compute the carrying value of the investment at the end of each year:

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 Inventory purchase from RNB at the time of purchase?

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?

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 premium on this contract at year-end?