Exam 10: Foreign Currency Transactions

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: January 1,2014 CDN \ 1.4416 December 31,2014 CDN \ 1.4325 December 31,2015 CDN \ 1.4675 December 31,2016 CDN \ 1.4436 December 31,2017 CDN \ 1.4625 Assume that the average annual exchange rate was equal to the December 31^st spot rates. -Prepare the journal entries for 2014.

What amount will be recorded as the value of the forward contract on the commitment date if the forward contract is recorded using the net method?

Which of the following would NOT be considered a foreign exchange hedge?

What is the amount of interest paid (in Canadian Dollars) during 2017?

What amount (in Canadian dollars) should ABC expect to receive from its bank on May 1, 2016?

What is the amount of CMI's foreign exchange gain or loss on February 28^th?

Which of the following statements is correct?

Prepare the 2016 journal entries to record the above transactions. In addition, prepare any adjusting journal entries that you deem necessary.

What is the amount of cash (in Canadian funds) received by CMI on the settlement date?

What is the amount of RXN's foreign exchange gain or loss prior to its hedge?

What is the total amount of CMI's foreign exchange gain or loss on this transaction?

What would be the amount of the foreign exchange gain or loss recorded at the balance sheet date?

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2016 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, 2017. On December 3, 2016 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1 Yen = CDN$1.185. The forward contract was designated as a fair value hedge of the receivable from the Japanese customer. Canada Corp received the payment from its Japanese client on March 1, 2017. Canada Corp's year end is on December 31. Selected spot rates were as follows: December 1, 2016: 1 Yen = CDN \1 .156 December 3, 2016: 1 Yen = CDN \1 .156 December 31, 2016: 1 Yen = CDN \ 1.1626 March 1, 2017: 1 Yen = CDN \ 1.1750 The two-month forward rate on December 31, 2016 was 1Yen = CDN$1.1800. -Prepare any and all journal entries arising from this transaction.

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?

What is the amount of CMI's foreign exchange gain or loss at year-end?

What is the amount of interest expense (in Canadian Dollars) recorded for 2017?

What is the required adjustment to the carrying value of the forward contract at the company's year-end?

Some gains and losses arising on a revaluation of property plant and equipment are to be included in other comprehensive income. When the asset is measured in a foreign currency, how would exchange differences be treated?

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

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2016 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, 2017. On December 3, 2016 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1 Yen = CDN$1.185. The forward contract was designated as a fair value hedge of the receivable from the Japanese customer. Canada Corp received the payment from its Japanese client on March 1, 2017. Canada Corp's year end is on December 31. Selected spot rates were as follows: December 1, 2016: 1 Yen = CDN \1 .156 December 3, 2016: 1 Yen = CDN \1 .156 December 31, 2016: 1 Yen = CDN \ 1.1626 March 1, 2017: 1 Yen = CDN \ 1.1750 The two-month forward rate on December 31, 2016 was 1Yen = CDN$1.1800. -Prepare the journal entries to record the receipt of the 500,000 Yen on March 1, 2017, assuming that Canada Corp did not enter into a hedge transaction in December 2016.