Deck 15: Global Business and Accounting

Question 1

Nancy Brown owns an American company that sells music cassettes to Mexican outlets. On December 10, X1, she sold tapes to Music of Mexico for a price of 16,000 pesos, due in 60 days. The foreign currency exchange rates on specific dates are as follows:


-Refer to the above data. The journal entry to record the sale in Brown's accounting records on December 10, X1, includes:

A) A debit to Accounts Receivable for 16,000 pesos.
B) A credit to Sales for $2,560.
C) A debit to Loss on Fluctuation of Foreign Currency for $260.
D) No entry is made until year-end on this type of transaction.

Answer 1

A credit to Sales for $2,560.

Question 2

Nancy Brown owns an American company that sells music cassettes to Mexican outlets. On December 10, X1, she sold tapes to Music of Mexico for a price of 16,000 pesos, due in 60 days. The foreign currency exchange rates on specific dates are as follows:


-Refer to the above data. With regard to this transaction, Brown's financial statements at December 31, X1 include:

A) An account receivable of $2,560.
B) A gain on fluctuation of foreign currency of $6.40.
C) Sales revenue of $2,553.60.
D) A loss on fluctuation of foreign currency of $6.40.

Answer 2

A loss on fluctuation of foreign currency of $6.40.

Question 3

Nancy Brown owns an American company that sells music cassettes to Mexican outlets. On December 10, X1, she sold tapes to Music of Mexico for a price of 16,000 pesos, due in 60 days. The foreign currency exchange rates on specific dates are as follows:


-Refer to the above data. Which of the following is not true regarding the above sales transaction to Music of Mexico?

A) Brown recognizes a loss on fluctuation of foreign currency in the amount of $4.65 in X1.
B) Brown recognizes a gain on fluctuation of foreign currency in the amount of $4.80 in X2.
C) Brown has incurred an overall loss of $1.60 on fluctuation of foreign currency in the period from December 10, X1 to February 8, X2.
D) Brown could have avoided any loss due to fluctuations in foreign currency by setting the sales price of the cassettes in terms of U.S. dollars instead of pesos.

Answer 3

Brown recognizes a loss on fluctuation of foreign currency in the amount of $4.65 in X1.

Question 4

Which of the following businesses or individuals would benefit most from a strong U.S. dollar?

A) A small store that sells American-made cameras in St. Louis, Missouri. The store has no foreign receivables or payables.
B) The Cancun, Mexico, outlet for Levi's jeans (made in the U.S.)
C) International Harvester (an American manufacturer of farming machinery that sells equipment to foreign customers.)
D) An American tourist visiting France.

Question 5

Utah Ranchers exports beef to Japan. In the space provided below, prepare journal entries to record the following events.

Question 6

The following table summarizes the facts of five independent cases (labeled a through e) of American companies engaging in credit transactions with foreign corporations while the foreign exchange rate is fluctuating:
Instructions
After evaluating the information about each case, fill the blank space that has been left in one of the four columns for each case. The content of each column and the word or words that you should enter in the blank spaces are described below:
Column 1 indicates the type of credit transaction in which the American company engaged with the foreign corporations. The answer entered in this column should be either "Sales" or "Purchases."
Column 2 indicates the currency in which the invoice price is stated. The answer may be either "U.S. dollars" or "Foreign currency."
Column 3 indicates the direction in which the foreign currency exchange rate has moved between the date of the credit transaction and the date of settlement. The answer in this column may be either "Rising" or "Falling."
Column 4 indicates the effect of the exchange rate fluctuation upon the income of the American company. The answers entered in this column are to be selected from the following: "Gain," "Loss," or "No effect."

Question 7

Listed below are nine global business terms introduced in this chapter:
Each of the following statements may (or may not) describe one of these terms. In the space provided below each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms.
a) The strategy of creating offsetting positions so that losses from currency fluctuations will be offset by gains resulting from the same fluctuations.
______________________________
b) Selling a good or service to a foreign customer.
______________________________
c) Government allocates resources and determines output through central planning.
______________________________
d) The organization responsible for developing uniform worldwide accounting standards.
______________________________
e) Distinguishes between illegal influence peddling and legal facilitating payments.
______________________________
f) A cross-border contractual agreement allowing one company to use trademarks, patents, or technology of another company.
______________________________
g) The impact on the value of a company of unexpected fluctuations in the exchange rate.
______________________________