Question 1

What is the amount of interest expense (in Canadian Dollars) recorded for 2016?

Accepted Answer

A)  $250,000. 
B)  $287,250. 
C)  $287,325. 
D) $372,500. 
A)  $250,000. 
B)  $287,250. 
C)  $287,325. 
D) $372,500. C

Question 2

IAS 39 Financial Instruments: Recognition and Measurement on speculative forward exchange contracts requires that the contract be:

Accepted Answer

A)  revalued using spot rates throughout its life with any gains or losses to be deferred and amortized as they occur. 
B)  revalued at fair value throughout its life with any gains or losses to be deferred and amortized as they occur. 
C)  valued using spot rates throughout its life with any gains or losses to be taken into income as they occur. 
D) revalued at fair value throughout its life with any gains or losses to be taken into income as they occur. 
A)  revalued using spot rates throughout its life with any gains or losses to be deferred and amortized as they occur. 
B)  revalued at fair value throughout its life with any gains or losses to be deferred and amortized as they occur. 
C)  valued using spot rates throughout its life with any gains or losses to be taken into income as they occur. 
D) revalued at fair value throughout its life with any gains or losses to be taken into income as they occur. D

Question 3

Which of the following provides the best hedge against exchange variations in the value of a stream of income in a foreign currency where the payments are expected to occur in equal amounts over a period of five years?

Accepted Answer

A)  Borrowing in the foreign currency with repayment due at the end of the five years. 
B)  Borrowing in Canadian dollars with repayment due at the end of the five years. 
C)  Borrowing in the foreign currency with annual repayments equal to the expected annual revenue cash flows. 
D) Borrowing in Canadian dollars with annual repayments equal to the expected annual revenue cash flows. 
A)  Borrowing in the foreign currency with repayment due at the end of the five years. 
B)  Borrowing in Canadian dollars with repayment due at the end of the five years. 
C)  Borrowing in the foreign currency with annual repayments equal to the expected annual revenue cash flows. 
D) Borrowing in Canadian dollars with annual repayments equal to the expected annual revenue cash flows. C

Question 4

What is the amount of the liability to the bank recorded on the commitment date if the forward contract is recorded using the gross method?

Accepted Answer

A)  CDN$686,700. 
B)  CDN$697,500. 
C)  CDN$701,400. 
D) CDN$703,500. 
A)  CDN$686,700. 
B)  CDN$697,500. 
C)  CDN$701,400. 
D) CDN$703,500.

Question 5

Atwhat amount (in Canadian Dollars) would the forward contract with the bank be recorded, if recorded gross?

Accepted Answer

A)  $337,500. 
B)  $343,500. 
C)  $347,500. 
D) $349,500. 
A)  $337,500. 
B)  $343,500. 
C)  $347,500. 
D) $349,500.

Question 6

On July 1, 2016, Great White North (GWN) Inc. purchased merchandise from a supplier in the U.S. for US$800,000 with terms requiring full payment by October 31, 2016. On July 2, GWN entered into a forward contract to purchase US$800,000 on October 31, 2016 at a rate of CDN$1.2275. The forward contract was designated as a hedge of the fair value of the amount due to the supplier.
On October 31, GWN paid its supplier in full. Selected dates and spot rates are shown below: $$\begin{array} { | l | l | } 
\hline \text { July } 1,2016 & \text { CDN } \$ 1.2150 \
\hline \text { July } 31,2016 & \text { CDN } \$ 1.2175 \
\hline \text { October } 31,2016 & \text { CDN } \$ 1.22 \
\hline
\end{array}$$ GWN has a July 31S1U1P1stS1S1P0 year end. On that date the forward rate for US dollars for three months was CDN $1.2225.
-Prepare any and all journal entries you deem necessary to record the above transaction.

Accepted Answer

The answer of On July 1, 2016, Great White North...

Question 7

Which of the following statements is NOT correct?

Accepted Answer

A)  In a fair value hedge, the entity uses a hedging instrument to hedge against the fluctuation in the fair value of the hedged item. This method will be used when the hedged item will be valued at fair value. 
B)  In a cash flow hedge, the entity uses a hedging instrument to hedge against the fluctuation in the Canadian dollar value of future cash flows. 
C)  The gain or loss on the hedging instrument in a cash flow hedge is initially reported in other comprehensive income and reclassified to profit and loss when the hedged item affects profit. 
D) The gain or loss on the hedging instrument in a fair value hedge is initially recognized in other comprehensive income and transferred to profit and loss when the hedged item has be revalued for accounting purposes in accordance with IFRS. 
A)  In a fair value hedge, the entity uses a hedging instrument to hedge against the fluctuation in the fair value of the hedged item. This method will be used when the hedged item will be valued at fair value. 
B)  In a cash flow hedge, the entity uses a hedging instrument to hedge against the fluctuation in the Canadian dollar value of future cash flows. 
C)  The gain or loss on the hedging instrument in a cash flow hedge is initially reported in other comprehensive income and reclassified to profit and loss when the hedged item affects profit. 
D) The gain or loss on the hedging instrument in a fair value hedge is initially recognized in other comprehensive income and transferred to profit and loss when the hedged item has be revalued for accounting purposes in accordance with IFRS.

Question 8

Prairie Dog Inc. borrowed US$10,000,000 on January 1, 2014 at an annual rate of 8%. The loan is due December 31, 2017 and interest is payable annually each December 31. The exchange rates on selected dates throughout the life of the loan are shown below: $$\begin{array} { | l | l | } 
\hline \text { January } 1,2014 & \text { CDN } \$ 1.4416 \
\hline \text { December } 31,2014 & \text { CDN } \$ 1.4325 \
\hline \text { December } 31,2015 & \text { CDN } \$ 1.4675 \
\hline \text { December } 31,2016 & \text { CDN } \$ 1.4436 \
\hline \text { December } 31,2017 & \text { CDN } \$ 1.4625 \
\hline
\end{array}$$ Assume that the average annual exchange rate was equal to the December 31S1U1P1stS1S1P0 spot rates.
-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.

Accepted Answer

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Question 9

What is the amount of the exchange gain or loss from the recognition of the hedge discount recognized during 2017?

Accepted Answer

A)  A loss of CDN$4,500. 
B)  A loss of CDN$3,000. 
C)  A gain of $ CDN4,500. 
D) Nil. 
A)  A loss of CDN$4,500. 
B)  A loss of CDN$3,000. 
C)  A gain of $ CDN4,500. 
D) Nil.

Question 10

Maplehauff Inc. sells lumber to a number of clients around the world. On December 1, 2015 the company shipped some lumber to a client in the U.S. The selling price was established at US$600,000 with payment to be received on March 1, 2016. On December 3, 2015 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of US$1 = CDN$1.275. The forward contract was designated as a fair value hedge of the amount due from the American customer.
Maplehauff Inc. received the payment from its American client on March 1, 2016. The company's year-end is on December 31. The two-month forward rate for US dollars was CDN$1.255 on that date.
Selected spot rates were as follows:
 $$\begin{array} { | l | l | } 
\hline \text { December 1, 2015: } & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2356 \
\hline \text { December } 3,2015 : & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2365 \
\hline \text { December } 31,2015 : & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2456 \
\hline \text { March 1, 2016: } & \text { US } \$ 1 = \operatorname { CDN } \$ 1.2480 \
\hline
\end{array}$$
-Prepare any and all journal entries arising from this transaction.

Accepted Answer

\[\begin{array} { |

Question 11

What is the amount of the forward contract in Canadian dollars?

Accepted Answer

A)  $686,700. 
B)  $697,500. 
C)  $701,400. 
D) $703,500. 
A)  $686,700. 
B)  $697,500. 
C)  $701,400. 
D) $703,500.

Question 12

What is the amount of interest paid (in Canadian Dollars) during 2016?

Accepted Answer

A)  $250,000. 
B)  $287,250. 
C)  $287,325. 
D) $372,500. 
A)  $250,000. 
B)  $287,250. 
C)  $287,325. 
D) $372,500.

Question 13

On January 1, 2014, 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, 2016. The following exchange rates were applicable between 2014 and 2016. The rates indicate the cost (in Canadian dollars) of purchasing 1 U.S. dollar:
 $$\begin{array} { | l | l | } 
\hline \text { January } 1,2014 & \text { CDN } \$ 1.4666 \
\hline \text { Average rate for } 2014 & \text { CDN } \$ 1.4570 \
\hline \text { December } 31,2014 & \text { CDN } \$ 1.4726 \
\hline \text { Auerage rate for } 2015 & \text { CDN } \$ 1.4600 \
\hline \text { December } 31,2015 & \text { CDN } \$ 1.4426 \
\hline \text { Average rate for } 2016 & \text { CDN } \$ 1.4500 \
\hline \text { December } 31,2016 & \text { CDN } \$ 1.4575 \
\hline
\end{array}$$
-Prepare GRL's journal entries for each of 2014, 2015 and 2016.

Accepted Answer

The answer of On January 1, 2014, GRL Inc. purchased,...

Question 14

At what value would CMI record the initial sale to its American distributor?

Accepted Answer

A)  CDN$105,171 
B)  US$120,000 
C)  CDN$120,000. 
D) CDN$136,920. 
A)  CDN$105,171 
B)  US$120,000 
C)  CDN$120,000. 
D) CDN$136,920.

Question 15

What is the amount of the foreign exchange gain or loss recognized on the 2016 Income Statement as a result of revaluing the loan payable?

Accepted Answer

A)  A CDN$10,000 loss. 
B)  A CDN$5,000 loss. 
C)  A CDN$5,000 gain. 
D) A CDN$10,000 gain. 
A)  A CDN$10,000 loss. 
B)  A CDN$5,000 loss. 
C)  A CDN$5,000 gain. 
D) A CDN$10,000 gain.

Question 16

How much (in Canadian Dollars) will RXN expect to receive from the bank when its forward contract is settled?

Accepted Answer

A)  $337,500. 
B)  $343,500. 
C)  $347,500. 
D) $349,500. 
A)  $337,500. 
B)  $343,500. 
C)  $347,500. 
D) $349,500.

Question 17

What is the amount of the premium on this contract?

Accepted Answer

A)  CDN$1,500. 
B)  $450. 
C)  $900. 
D) Nil. 
A)  CDN$1,500. 
B)  $450. 
C)  $900. 
D) Nil.

Question 18

On January 1, 2014, 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, 2016. The following exchange rates were applicable between 2014 and 2016. The rates indicate the cost (in Canadian dollars) of purchasing 1 U.S. dollar:
 $$\begin{array} { | l | l | } 
\hline \text { January } 1,2014 & \text { CDN } \$ 1.4666 \
\hline \text { Average rate for } 2014 & \text { CDN } \$ 1.4570 \
\hline \text { December } 31,2014 & \text { CDN } \$ 1.4726 \
\hline \text { Auerage rate for } 2015 & \text { CDN } \$ 1.4600 \
\hline \text { December } 31,2015 & \text { CDN } \$ 1.4426 \
\hline \text { Average rate for } 2016 & \text { CDN } \$ 1.4500 \
\hline \text { December } 31,2016 & \text { CDN } \$ 1.4575 \
\hline
\end{array}$$
-Compute the carrying value of the investment at the end of each year:

Accepted Answer

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\hline 20

Question 19

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

Accepted Answer

A)  Inflation rates. 
B)  The pegging of a currency to the American (U.S.) dollar. 
C)  Interest rates. 
D) Trade surpluses and deficits. 
A)  Inflation rates. 
B)  The pegging of a currency to the American (U.S.) dollar. 
C)  Interest rates. 
D) Trade surpluses and deficits.

Question 20

At what amount (in Canadian Dollars) would XYZ record its initial Loan Liability on January 1, 2016?

Accepted Answer

A)  $5,471,500. 
B)  $5,476,500. 
C)  $5,747,500. 
D) $5,750,000. 
A)  $5,471,500. 
B)  $5,476,500. 
C)  $5,747,500. 
D) $5,750,000.

What is the amount of interest expense (in Canadian Dollars) recorded for 2016?

IAS 39 Financial Instruments: Recognition and Measurement on speculative forward exchange contracts requires that the contract be:

Which of the following provides the best hedge against exchange variations in the value of a stream of income in a foreign currency where the payments are expected to occur in equal amounts over a period of five years?

What is the amount of the liability to the bank recorded on the commitment date if the forward contract is recorded using the gross method?

Atwhat amount (in Canadian Dollars) would the forward contract with the bank be recorded, if recorded gross?

Which of the following statements is NOT correct?

What is the amount of the exchange gain or loss from the recognition of the hedge discount recognized during 2017?

What is the amount of the forward contract in Canadian dollars?

What is the amount of interest paid (in Canadian Dollars) during 2016?

At what value would CMI record the initial sale to its American distributor?

What is the amount of the foreign exchange gain or loss recognized on the 2016 Income Statement as a result of revaluing the loan payable?

How much (in Canadian Dollars) will RXN expect to receive from the bank when its forward contract is settled?

What is the amount of the premium on this contract?

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

At what amount (in Canadian Dollars) would XYZ record its initial Loan Liability on January 1, 2016?

Conceptual and Case Analysis Frameworks for Financial Reporting

Investments in Equity Securities

Business Combinations

Consolidation of Non-Wholly Owned Subsidiaries

Consolidation Subsequent to Acquisition Date

Intercompany Inventory and Land Profits

A Intercompany Profits in Depreciable Assets B Intercompany Bondholdings

Consolidated Cash Flows and Changes in Ownership

Other Consolidation Reporting Issues

Translation and Consolidation of Foreign Operations

Accounting for Not-For-Profit and Public Sector Organizations

Filters

Exam 10: Foreign Currency Transactions

What is the amount of interest expense (in Canadian Dollars) recorded for 2016?

IAS 39 Financial Instruments: Recognition and Measurement on speculative forward exchange contracts requires that the contract be:

Which of the following provides the best hedge against exchange variations in the value of a stream of income in a foreign currency where the payments are expected to occur in equal amounts over a period of five years?

What is the amount of the liability to the bank recorded on the commitment date if the forward contract is recorded using the gross method?

Atwhat amount (in Canadian Dollars) would the forward contract with the bank be recorded, if recorded gross?

Which of the following statements is NOT correct?

What is the amount of the exchange gain or loss from the recognition of the hedge discount recognized during 2017?

What is the amount of the forward contract in Canadian dollars?

What is the amount of interest paid (in Canadian Dollars) during 2016?

At what value would CMI record the initial sale to its American distributor?

What is the amount of the foreign exchange gain or loss recognized on the 2016 Income Statement as a result of revaluing the loan payable?

How much (in Canadian Dollars) will RXN expect to receive from the bank when its forward contract is settled?

What is the amount of the premium on this contract?

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

At what amount (in Canadian Dollars) would XYZ record its initial Loan Liability on January 1, 2016?

Conceptual and Case Analysis Frameworks for Financial Reporting

Investments in Equity Securities

Business Combinations

Consolidation of Non-Wholly Owned Subsidiaries

Consolidation Subsequent to Acquisition Date

Intercompany Inventory and Land Profits

A Intercompany Profits in Depreciable Assets B Intercompany Bondholdings

Consolidated Cash Flows and Changes in Ownership

Other Consolidation Reporting Issues

Translation and Consolidation of Foreign Operations

Accounting for Not-For-Profit and Public Sector Organizations

Filters