Norton Co., a U.S. corporation, sold inventory on December 1, 2011, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: \[\begin{array} { | l | l | l | } \hline \text { Dec 1 } & \text { Spot rate: } & \$ 1.7241 \\ \hline \text { Dec. 31 } & \text { Spot rate: } & \$ 1.8182 \\ \hline \text { Jan. 30 } & \text { Spot rate: } & \$ 1.6666 \\ \hline \end{array}\] -For what amount should Sales be credited on December 1?

A) $5,500. B) $16,949. C) $18,182. D) $17,241. E) $16,667. A) $5,500. B) $16,949. C) $18,182. D) $17,241. E) $16,667.

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: $\begin{array}{lrr}& & \text { Forward } \\ & \text { Sot } & \text { Rate } \\ \text { Date } & \text { Rate } & \text { to Jan.15 }\\ \text { December 16, 2011 } & \$ .00092 & \$ .00098 \\ \text { December 31,2011 } & .00090 & .00093 \\ \text { January } 15,2012 & .00095 & .00095 \end{array}$ -Assuming a forward contract was entered into, what would be the net impact on Car Corp.'s 2011 income statement related to this transaction? Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901.

A) $700 (gain). B) $700 (loss). C) $300 (gain). D) $300 (loss). E) $295 (gain). A) $700 (gain). B) $700 (loss). C) $300 (gain). D) $300 (loss). E) $295 (gain).

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: $\begin{array}{lrr}& & \text { Forward } \\ & \text { Sot } & \text { Rate } \\ \text { Date } & \text { Rate } & \text { to Jan.15 }\\ \text { December 16, 2011 } & \$ .00092 & \$ .00098 \\ \text { December 31,2011 } & .00090 & .00093 \\ \text { January } 15,2012 & .00095 & .00095 \end{array}$ -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 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: \[\begin{array} { | l | c | } \hline \text { Date } & \text { Spot Rate } \\ \hline \text { October 1, 2011 } & \$ 2.00 \\ \hline \text { December 31, 2011 } & \$ 1.97 \\ \hline \text { February 1,2012 } & \$ 2.01 \\ \hline \end{array}\] -What journal entry should Eagle prepare on October 1, 2011? \[\begin{array} { | l | c | r | r | } \hline \text { A) } & \text { Cash } & 1,800 & \\ \hline & \text { Foreign Currency Option } & & 1,800 \\ \hline \text { B) } & \text { Forward Contract } & 1,800 & \\ \hline & \text { Cash } & & 1,800 \\ \hline \text { C) } & \text { Foreign Currency Option } & 1,800 & \\ \hline & \text { Gain on Foreign Currency } & & 1,800 \\ \hline \text { D) } & \text { Loss on Foreign Currency } & 1,800 & \\ \hline & \text { Cash } & & 1,800 \\ \hline \text { E) } & \text { Foreign Currency Option } & 1,800 & \\ \hline & \text { Cash } & & 1,800 \\ \hline \end{array}\]

A) A above. B) B above. C) C above. D) D above. E) E above. A) A above. B) B above. C) C above. D) D above. E) E above.

Exam 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk

Norton Co., a U.S. corporation, sold inventory on December 1, 2011, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: Dec 1 Spot rate: \ 1.7241 Dec. 31 Spot rate: \ 1.8182 Jan. 30 Spot rate: \ 1.6666 -For what amount should Sales be credited on December 1?

(Multiple Choice)

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Question 81

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 Sot 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, what would be the net impact on Car Corp.'s 2011 income statement related to this transaction? Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901.

(Multiple Choice)

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Question 82

How does a foreign currency forward contract differ from a foreign currency option?

(Essay)

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Question 83

For each of the following situations, select the best answer concerning accounting for foreign currency transactions:

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Question 84

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 2012 effect on net income as a result of these transactions?

(Multiple Choice)

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Question 85

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?

(Multiple Choice)

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Question 86

All of the following data may be needed to determine the fair value of a forward contract at any point in time except

(Multiple Choice)

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Question 87

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 Sot 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

(Multiple Choice)

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Question 88

On October 31, 2010, Darling Company negotiated a two-year 100,000 franc loan from a foreign bank at an interest rate of 3 percent per year. Interest payments are made annually on October 31, and the principal will be repaid on October 31, 2012. Darling prepares U.S.-dollar financial statements and has a December 31 year-end. Prepare all journal entries related to this foreign currency borrowing assuming the following: Franc Rate October 31,2010 \ 0.50 December 31,2010 \ 0.52 October 31,2011 \ 0.60 December 31,2011 \ 0.62 October 31,2012 \ 0.75

(Essay)

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Question 89

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 an option expense in net income for the period July 24 to October 24?

(Multiple Choice)

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Question 90

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 -The beginning balance of cash was 50,000 pesos on January 1, 2011, translated at 1 peso = $.18. What amount will Coyote Corp. report in its 2011 balance sheet for Cash?

(Essay)

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Question 91

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?

(Multiple Choice)

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Question 92

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 journal entry should Eagle prepare on October 1, 2011? A) Cash 1,800 Foreign Currency Option 1,800 B) Forward Contract 1,800 Cash 1,800 C) Foreign Currency Option 1,800 Gain on Foreign Currency 1,800 D) Loss on Foreign Currency 1,800 Cash 1,800 E) Foreign Currency Option 1,800 Cash 1,800

(Multiple Choice)

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Question 93

How does a foreign currency forward contract differ from a foreign currency option?

For each of the following situations, select the best answer concerning accounting for foreign currency transactions:

All of the following data may be needed to determine the fair value of a forward contract at any point in time except

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

Consolidated Financial Statements - Ownership Patterns and Income

Segment and Interim Reporting

Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operations

Partnerships: Termination and Liquidation

Accounting for State and Local Governments

Accounting for State and Local Governments

Accounting and Reporting for Private Not-For-Profit Organizations

Accounting for Estates and Trusts

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