Exam 8: Multinational Accounting: Foreign Currency Transactions and Financial Instruments

On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is denominated in Saudi riyals. Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are: -Based on the preceding information, what was the overall foreign currency gain or loss on the accounts payable transaction?

On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is denominated in Saudi riyals. Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are: -Based on the preceding information, what journal entry would Imperial make on December 31, 20X8, to revalue foreign currency payable to equivalent U.S. dollar value?

Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November 30, 20X8, AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4 per barrel, with a February 1, 20X9, call date. The following is the pricing information for the term of the call: The information for the change in the fair value of the options follows: On February 1, 20X9, AMAR sells the options at their value on that date and acquires 20,000 barrels of oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112 per barrel. -Based on the preceding information, which of the following entries will be required on February 1, 20X9?

Spartan Company purchased interior decoration material from Egypt for 100,000 Egyptian pounds on September 5, 20X8, with payment due on December 2, 20X8. Additionally, on September 5, Spartan acquired a 90-day forward contract to purchase 100,000 Egyptian pounds of E $\leq$ = $.1850. The forward contract was acquired to manage the exposed net liability position in Egyptian pounds, but it was not designated as a hedge. The spot rates were: -Based on the preceding information, in the entry made on December 2^nd to revalue foreign currency receivable to current equivalent U.S. dollar value,

On March 1, 20X8, Wilson Corporation sold goods for a U.S. dollar equivalent of $31,000 to a Thai company. The transaction is denominated in Thai bahts. The payment is received on May 10. The exchange rates were: What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on May 10?

On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share. Winston classifies them as available-for-sale securities. On this same date, it decides to hedge against a possible decline in the value of the securities by purchasing, at a cost of $250, an at-the-money put option to sell the 100 shares at $40 per share. The option expires on February 20, 20X9. Selected information concerning the fair values of the investment and the options follow: Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9. -Based on the preceding information, the journal entry made on December 31, 20X8 to record decrease in the time value of the options will include:

Upon arrival in Chile, Karen exchanged $1,000 of U.S. currency into 480,000 Chilean Pesos. While returning after her two month visit, she exchanged her remaining 50,000 Pesos into $100 of U.S. currency. What amount of gain or a loss did Karen experience on the 50,000 pesos she held during her visit and converted to U.S. dollars at the departure date?

Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian reals on December 1, 20X8, with payment due on January 20, 20X9. The exchange rates were: -Based on the preceding information, what is the Heavy's overall net gain or net loss from its foreign currency exposure related to this transaction?

An investor purchases a put option with a strike price of $100 for $3. This option is considered "in the money" if the underlying is trading:

Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9 with settlement to be in 60 days. On the same date, Alman entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were: -Based on the preceding information, what is the overall effect on net income of Myway's use of the forward exchange contract?

Mint Corporation has several transactions with foreign entities. Each transaction is denominated in the local currency unit of the country in which the foreign entity is located. On October 1, 20X8, Mint purchased confectionary items from a foreign company at a price of LCU 5,000 when the direct exchange rate was 1 LCU = $1.20. The account has not been settled as of December 31, 20X8, when the exchange rate has decreased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:

Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1, 20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs. The forward contract is not designated as a hedge. The rates were as follows: -Based on the preceding information, the entries on January 30, 20X9, include a:

Spartan Company purchased interior decoration material from Egypt for 100,000 Egyptian pounds on September 5, 20X8, with payment due on December 2, 20X8. Additionally, on September 5, Spartan acquired a 90-day forward contract to purchase 100,000 Egyptian pounds of E $\leq$ = $.1850. The forward contract was acquired to manage the exposed net liability position in Egyptian pounds, but it was not designated as a hedge. The spot rates were: -Based on the preceding information, what is the entry required to settle foreign currency payable on December 2?

On November 1, 20X8, Denver Company borrowed 500,000 local currency units (LCU) from a foreign lender evidenced by an interest-bearing note due on November 1, 20X9, which is denominated in the currency of the lender. The U.S. dollar equivalent of the note principal was as follows: In its income statement for 20X9, what amount should Denver include as a foreign exchange gain or loss on the note principal?

Quantum Company imports goods from different countries. Some transactions are denominated in U.S. dollars and others in foreign currencies. A summary of accounts receivable and accounts payable on December 31, 2008, before adjustments for the effects of changes in exchange rates during 2008, follows: The spot rates on December 31, 2008, were: The average exchange rates during the collection and payment period in 2009 are: Required: 1) Prepare the adjusting entries on December 31, 2008. 2) Record the collection of the accounts receivable and the payment of the accounts payable in 2009. 3) What was the foreign currency gain or loss on the accounts receivable transaction denominated in SFr for the year ended December 31, 2008? For the year ended December 31, 2009? Overall for this transaction? 4) What was the foreign currency gain or loss on the accounts receivable transaction denominated in $\times$ ? For the year ended December 31, 2008? For the year ended December 31, 2009? Overall for this transaction?

Chicago based Corporation X has a number of importing transactions with companies based in UK. Importing activities result in payables. If the settlement currency is the British Pound, which of the following will happen by changes in the direct or indirect exchange rates?

Mint Corporation has several transactions with foreign entities. Each transaction is denominated in the local currency unit of the country in which the foreign entity is located. On November 2, 20X8, Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08. The account has not been settled as of December 31, 20X8, when the exchange rate has increased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:

Chicago based Corporation X has a number of exporting transactions with companies based in Sweden. Exporting activities result in receivables. If the settlement currency is the Swedish Krona, which of the following will happen by changes in the direct or indirect exchange rates?

On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds ( $\leq$ ) at a forward rate of $\leq$ 1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42. The rates are as follows: Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes. -Based on the preceding information, what is the effect of the British pound speculative contract on 20X8 net income?

On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds ( $\leq$ ) at a forward rate of $\leq$ 1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42. The rates are as follows: Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes. -Based on the preceding information, what is the overall effect of speculation on 20X9 net income?