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:$\begin{array}{lrr} &&\text { Forward }\\ &\text {Spot}&\text {Rate}\\ \text { Date } & \text { Rate } & \text { to Jan } 15\\ \hline\text { December 16, 2011 } & \$ .00092 & \$ .00098 \\ \text { December 31, 2011 } & .00090 & .00093 \\ \text { January 15, 2012 } & .00095 & .00095 \end{array}$ -Assuming a forward contract was entered into,how would the forward contract be reflected on Car's December 31,2011 balance sheet?

A) Forward contract (asset). B) Forward contract (liability). C) Foreign currency (asset). D) Foreign currency (liability). E) Foreign exchange (liability). A) Forward contract (asset). B) Forward contract (liability). C) Foreign currency (asset). D) Foreign currency (liability). E) Foreign exchange (liability).

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:$\begin{array}{lrr} &&\text { Forward }\\ &\text {Spot}&\text {Rate}\\ \text { Date } & \text { Rate } & \text { to Jan } 15\\ \hline\text { December 16, 2011 } & \$ .00092 & \$ .00098 \\ \text { December 31, 2011 } & .00090 & .00093 \\ \text { January 15, 2012 } & .00095 & .00095 \end{array}$ -Assuming a forward contract was entered into,the foreign currency was originally sold in the foreign currency market on December 16,2011 at a

A) forward contract discount $600. B) forward contract premium $600. C) forward contract discount $980. D) forward discount premium $980. E) There is no premium or discount because the fair value of the contract is zero. A) forward contract discount $600. B) forward contract premium $600. C) forward contract discount $980. D) forward discount premium $980. E) There is no premium or discount because the fair value of the contract is zero.

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:$\begin{array}{|l|c|} \hline {\text { Date }} & \text { Amount } \\ \hline \text { April 1,2010 } & \$ 97,000 \\ \hline \text { December 31,2010 } & \$ 103,000 \\ \hline \text { April 1,2011 } & \$ 105,000 \\ \hline \end{array}$ -How much foreign exchange gain or loss should be included in Shannon's 2011 income statement?

A) $1,000 gain. B) $1,000 loss. C) $2,000 gain. D) $2,000 loss. E) $8,000 loss. A) $1,000 gain. B) $1,000 loss. C) $2,000 gain. D) $2,000 loss. E) $8,000 loss.

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:$\begin{array}{|l|c|} \hline {\text { Date }} & \text { Amount } \\ \hline \text { April 1,2010 } & \$ 97,000 \\ \hline \text { December 31,2010 } & \$ 103,000 \\ \hline \text { April 1,2011 } & \$ 105,000 \\ \hline \end{array}$ -How much foreign exchange gain or loss should be included in Shannon's 2010 income statement?

A) $3,000 gain. B) $3,000 loss. C) $6,000 gain. D) $6,000 loss. E) $7,000 gain. A) $3,000 gain. B) $3,000 loss. C) $6,000 gain. D) $6,000 loss. E) $7,000 gain.

Exam 7: Foreign Currency Transactions and Hedging Foreign Exchange Risk

Old Colonial Corp.(a U.S.company)made a sale to a foreign customer on September 15,2011,for 100,000 stickles.Payment was received on October 15,2011.The following exchange rates applied: Exchange Date Rate September 15,2011 \ 1=\ .48 September 30,2011 \ 1=\ .50 October 15,2011 \ 1=\ .44 Required: Prepare all journal entries for Old Colonial Corp.in connection with this sale assuming that the company closes its books on September 30 to prepare interim financial statements.

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$\begin{array}{|l|l|l|llll|} \hline \text {2011 } & \text { } & \text { }&\\\hline \text { Sept 15 } & \text { Accounts receivable $ (\$ 100,000 \times \$ .48) $ } & \text { 48,000 }&\\\hline \text { } & \text { Sales } & \text { }&48,000\\\hline&&&&\\ \hline\text {30 } & \text {Accounts receivable } & \text {2,000 }&\\ \hline \text { } & \text { Foreign exchange gain } & \text { }&2,000\\ \hline \text { } & \text {[§ 100,000 ×\$ 50-\$ .48)]} & \text { }\\ \hline&&&&\\ \hline \text { Oct. 15 } & \text { Foreign exchange loss} & \text {6,000 }&\\ \hline \text { } & \text { Accounts Receivable } & \text { }&6,000\\ \hline \text { } & \text {[§ 100,000×(\$ 50-\$ 44)]) } & \text { }\\ \hline&&&&\\ \hline\text {Oct. 15 } & \text { Cash $ [\$ 100,000 \times(\$ .50-\$ 44)] $ } & \text { 44,000 }&\\\hline \text { } & \text { Accounts receivable } & \text { }&44,000\\\hline \end{array}$

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 2011?

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C

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.

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Yelton could sign a forward exchange contract to sell the euros in 60 days,after they are received.Alternatively,Yelton could purchase an option to sell the euros in 60 days,after they are received.

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

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Question 4

Atherton,Inc. ,a U.S.company,expects to order goods from a foreign supplier at a price of 100,000 lira,with delivery and payment to be made on April 17.On January 17,Atherton purchased a three-month call option on 100,000 lira and designated this option as a cash flow hedge of a forecasted foreign currency transaction.The following exchange rates apply: Option strike price \ 4.34 Option cost \ 5,000 July 24 spot rate \ 4.34 April 17 spot rate \ 4.26 What amount will Atherton include as an option expense in net income for the period January 17 to April 17?

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Question 5

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: Date Spot Rate Option Premium December 1,2011 \ .97 \ .05 December 31,2011 \ .95 \ .04 February 1,2012 \ .94 \ .03 -Compute the fair value of the foreign currency option at December 1,2011.

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Question 6

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: Option strike price \ 2.17 Option cost \ 4,000 July 24 spot rate \ 2.17 October 24 spot rate \ 2.13 October 24 option premium \ .04 -What amount will Woolsey include as Adjustment to Net Income for the period ended October 31?

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Question 7

Alpha,Inc. ,a U.S.company,had a receivable from a customer that was denominated in Mexican pesos.On December 31,2010,this receivable for 75,000 pesos was correctly included in Alpha's balance sheet at $8,000.The receivable was collected on March 2,2011,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 31,2011?

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Question 8

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: Forward Spot Rate Date Rate to Jan 15 December 16, 2011 \ .00092 \ .00098 December 31, 2011 .00090 .00093 January 15, 2012 .00095 .00095 -Assuming a forward contract was entered into,how would the forward contract be reflected on Car's December 31,2011 balance sheet?

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Question 9

On October 1,2011,Jarvis Co.sold inventory to a customer in a foreign country,denominated in 100,000 local currency units (LCU).Collection is expected in four months.On October 1,2011,a forward exchange contract was acquired whereby Jarvis Co.was to pay 100,000 LCU in four months (on February 1,2012)and receive $78,000 in U.S.dollars.The spot and forward rates for the LCU were as follows: Date Rate Description Exchange Rate October 1, 2011 Spot Rate \ .83=1 LCU December 31,2011 Spot Rate \ .85=1 LCU 1-Month Forward Rate \ .80=1 LCU February 1,2012 Spot Rate \ .86=1 LCU The company's borrowing rate is 12%.The present value factor for one month is .9901. Any discount or premium on the contract is amortized using the straight-line method. -Assuming this is a fair value hedge,prepare journal entries for this sales transaction and forward contract.

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Question 10

Coyote Corp.(a U.S.company in Texas)had the following series of transactions in a foreign country during 2011: Mar. 1 Bought inventory costing 60,000 pesos on credit. May 1 Sold 60\% of the inventory for 54,000 pesos on credit. Aug. 1 Collected 48,000 pesos from customers Sept. 1 Paid 36,000 pesos to creditors The appropriate exchange rates during 2011 were as follows: Exchange Date Rate March 1,2011 \ .20=1 peso May 1, 2011 \ .22=1 peso August 1,2011 \ .23=1 peso September 1,2011 \ .24=1 peso December 31,2011 \ .25=1 peso -What amount will Coyote Corp.report in its 2011 balance sheet for Inventory?

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Question 11

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: Forward Spot Rate Date Rate to Jan 15 December 16, 2011 \ .00092 \ .00098 December 31, 2011 .00090 .00093 January 15, 2012 .00095 .00095 -Assuming a forward contract was entered into,the foreign currency was originally sold in the foreign currency market on December 16,2011 at a

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Question 12

What is meant by the spot rate?

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Question 13

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

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Question 14

A spot rate may be defined as

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Question 15

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: Date Spot Rate October 1, 2011 \ 2.00 December 31, 2011 \ 1.97 February 1, 2012 \ 2.01 -What is the amount of Cost of Goods Sold for 2012 as a result of these transactions?

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Question 16

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?

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Question 17

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: Date Amount April 1,2010 \ 97,000 December 31,2010 \ 103,000 April 1,2011 \ 105,000 -How much foreign exchange gain or loss should be included in Shannon's 2011 income statement?

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Question 18

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?

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Question 19

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: Date Amount April 1,2010 \ 97,000 December 31,2010 \ 103,000 April 1,2011 \ 105,000 -How much foreign exchange gain or loss should be included in Shannon's 2010 income statement?

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Question 20

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.

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

What is meant by the spot rate?

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

A spot rate may be defined as

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations-Subsequent to the Date of Acquisition

Consolidated Financial Statements and Outside Ownership

Consolidated Financial Statements - Intra-Entity Asset Transactions

Variable Interest Entities,intra-Entity Debt,consolidated Cash Flo

Translation of Foreign Currency Financial Statements

Partnerships: Formation and Operations

Partnerships: Termination and Liquidation

Accounting for State and Local Governments Part 1

Accounting for State and Local Governments Part 2

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