Deck 10: Foreign Currency Transactions

Question 1

Which of the following statements accurately describes the manner in which transactions must be translated under IAS 21?

A)All transactions must be translated into the functional currency of the reporting entity.
B)All transactions must be converted into the local currency of the reporting entity.
C)All transactions are to be reported into the currency of the jurisdiction where the majority of shareholders reside.
D)All transactions may be reported into the currency of the country where the corporation does the majority of its business.

Answer 1

A

Question 2

Which of the following statements is correct?

A)In Canada,the cost of a unit of foreign currency in Canadian dollars is a direct quotation,while the cost in that foreign currency of purchasing one Canadian dollar is referred to as an indirect quotation.
B)In Canada,the cost of a unit of foreign currency in Canadian dollars is an indirect quotation,while the cost in that foreign currency of purchasing one Canadian dollar is referred to as a direct quotation.
C)In Canada,the cost of a unit of foreign currency in Canadian dollars is a direct quotation,and the cost in that foreign currency of purchasing one Canadian dollar is also referred to as a direct quotation.
D)In Canada,the cost of a unit of foreign currency in Canadian dollars is an indirect quotation,while the cost in that foreign currency of purchasing one Canadian dollar is also referred to as an indirect quotation.

Answer 2

A

Question 3

The following information refers to questions
On July 1,2012 CDN purchased inventory from its main U.S.supplier RNB Enterprises at a cost of $1,000 U.S dollars.CDN's year end is on July 31.
Some important dates regarding this transaction,as well as the exchange rates in effect at each of these dates are shown below:
At what amount would CDN record its Inventory purchase from RNB at the time of purchase?

A)$820 U.S.
B)$820 CDN.
C)$810 CDN.
D)$805 CDN.

Answer 3

B

Question 4

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?

A)The Foreign currency hedge.
B)The forward contract.
C)The spot rate.
D)The forward exchange contract.

Question 5

The following information refers to questions
On July 1,2012 CDN purchased inventory from its main U.S.supplier RNB Enterprises at a cost of $1,000 U.S dollars.CDN's year end is on July 31.
Some important dates regarding this transaction,as well as the exchange rates in effect at each of these dates are shown below:
What would be the amount of the foreign exchange gain or loss recorded at the balance sheet date?

A)Nil.
B)A $10 Exchange Loss.
C)A $10 Exchange Gain.
D)A $15 Exchange Loss.

Question 6

The following information pertains to questions
On January 1,2013,Canadian Music International (CMI),a manufacturer of high-end recording equipment based in Toronto,shipped $120,000 worth of inventory to its main U.S.distributor in Chicago,with full payment of these goods to be paid by February 28,2013.CMI has a January 31 year end.A list of significant dates and exchange rates is shown below. The invoice price billed by CMI was $120,000 U.S.
What is the amount of CMI's foreign exchange gain or loss at year-end?

A)Nil.
B)$120 Gain.
C)$120 Loss.
D)$480 Gain.

Question 7

The following information pertains to questions
On January 1,2013,Canadian Music International (CMI),a manufacturer of high-end recording equipment based in Toronto,shipped $120,000 worth of inventory to its main U.S.distributor in Chicago,with full payment of these goods to be paid by February 28,2013.CMI has a January 31 year end.A list of significant dates and exchange rates is shown below. The invoice price billed by CMI was $120,000 U.S.
What is the amount of CMI's foreign exchange gain or loss on February 28th?

A)$360 Loss.
B)$120 Gain.
C)$360 Gain.
D)$480 Gain.

Question 8

The following information pertains to questions
On January 1,2013,Canadian Music International (CMI),a manufacturer of high-end recording equipment based in Toronto,shipped $120,000 worth of inventory to its main U.S.distributor in Chicago,with full payment of these goods to be paid by February 28,2013.CMI has a January 31 year end.A list of significant dates and exchange rates is shown below. The invoice price billed by CMI was $120,000 U.S.
What is the TOTAL amount of CMI's foreign exchange gain or loss on this transaction?

A)$360 Loss.
B)$120 Gain.
C)$360 Gain.
D)$480 Gain.

Question 9

The following information pertains to questions
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows:
What is the amount of interest expense (in Canadian Dollars)recorded for 2010?

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

Question 10

The following information refers to questions
On July 1,2012 CDN purchased inventory from its main U.S.supplier RNB Enterprises at a cost of $1,000 U.S dollars.CDN's year end is on July 31.
Some important dates regarding this transaction,as well as the exchange rates in effect at each of these dates are shown below:
What would be the amount of the foreign exchange gain or loss recorded at the balance sheet date under the one-transaction approach?

A)Nil.
B)A $10 Exchange Loss.
C)A $10 Exchange Gain.
D)A $15 Exchange Loss.

Question 11

The following information pertains to questions
On January 1,2013,Canadian Music International (CMI),a manufacturer of high-end recording equipment based in Toronto,shipped $120,000 worth of inventory to its main U.S.distributor in Chicago,with full payment of these goods to be paid by February 28,2013.CMI has a January 31 year end.A list of significant dates and exchange rates is shown below. The invoice price billed by CMI was $120,000 U.S.
What is the amount of cash (in Canadian funds)received by CMI on the settlement date?

A)$136,920
B)$137,040
C)$137,400
D)$137,880

Question 12

The following information pertains to questions
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows:
At would amount (in Canadian Dollars)would XYZ record its initial Loan Liability on January 1,2010.

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

Question 13

The following information pertains to questions
On January 1,2013,Canadian Music International (CMI),a manufacturer of high-end recording equipment based in Toronto,shipped $120,000 worth of inventory to its main U.S.distributor in Chicago,with full payment of these goods to be paid by February 28,2013.CMI has a January 31 year end.A list of significant dates and exchange rates is shown below. The invoice price billed by CMI was $120,000 U.S.
At what value did CMI record the initial sale to its American distributor?

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

Question 14

The following information refers to questions
On July 1,2012 CDN purchased inventory from its main U.S.supplier RNB Enterprises at a cost of $1,000 U.S dollars.CDN's year end is on July 31.
Some important dates regarding this transaction,as well as the exchange rates in effect at each of these dates are shown below:
What would be the amount of the foreign exchange gain or loss recorded at the settlement date?

A)A $5 Exchange Gain.
B)A $10 Exchange Loss.
C)A $10 Exchange Gain.
D)A $15 Exchange Loss.

Question 15

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

A)As an item to be included in income or loss for the year.
B)As a reduction or increase in the carry cost of the asset.
C)As a contra account to be fully disclosed and to show the impact of foreign exchange differences.
D)The differences should be included in the calculation of other comprehensive income.

Question 16

The following information refers to questions
On July 1,2012 CDN purchased inventory from its main U.S.supplier RNB Enterprises at a cost of $1,000 U.S dollars.CDN's year end is on July 31.
Some important dates regarding this transaction,as well as the exchange rates in effect at each of these dates are shown below:
At what amount would CDN record its Liability to RNB at the time of purchase?

A)$820 U.S.
B)$820 CDN.
C)$810 CDN.
D)$805 CDN.

Question 17

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

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

Question 18

At the balance sheet date,monetary items denominated in a foreign currency should be adjusted to reflect the exchange rate in effect at the:

A)time of settlement of the contract.
B)time the sale was recorded.
C)Balance sheet date.
D)time of payment.

Question 19

Which of the following is correct?

A)The historical rate is the exchange rate on the date of the transaction and the closing rate is the exchange rate at the end of the reporting period.
B)The historical rate is the exchange rate on the date of the transaction and the closing rate is the rate on which any hedge transactions mature.
C)The spot rate is the rate on the date of the transaction and the relevant forward rate is the exchange rate used at the end of the reporting period.
D)None of the above.

Question 20

The following information refers to questions
On July 1,2012 CDN purchased inventory from its main U.S.supplier RNB Enterprises at a cost of $1,000 U.S dollars.CDN's year end is on July 31.
Some important dates regarding this transaction,as well as the exchange rates in effect at each of these dates are shown below:
What was the amount paid to RNB by CDN at the settlement date?
The one-transaction method was dropped according to an earlier version of the text around 2005.

A)$820 U.S.
B)$820 CDN.
C)$810 CDN.
D)$805 CDN.

Question 21

The following information pertains to questions
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows:
By what amount (in Canadian Dollars)would ABC have to adjust its Loan Liability on December 31,2010 as a result of the year's foreign exchange rate fluctuations?

A)Nil.
B)A $5,000 increase.
C)A $2,500 decrease.
D)A $3,500 decrease.

Question 22

The following information pertains to questions
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows:
What is the amount of interest paid (in Canadian Dollars)during 2011?

A)$250,000
B)$372,500
C)$287,330
D)$287,125

Question 23

The following information pertains to questions
On July 1,2014,when the spot rate was US$1=CDN$1.1445,North Inc,based in the Alberta,ordered merchandise from an American supplier for US$600,000.Delivery was scheduled for the month of September,with payment to be made in full by December31,2014.
Once the order was placed,North entered into a forward contract with its bank to purchase US$600,000 in December at the forward rate of $1.1625CDN.The merchandise was received on October 1,2014,when the spot rate was US$1=$1.1575CDN.On October 31,the company's year-end,the spot rate was $1.1690.North purchased the U.S.dollars to pay its supplier on November 15,2014 when the spot rate was $1.1725CDN.
What is the amount of the Liability to the bank recorded on the commitment date?

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

Question 24

The following information pertains to questions
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows:
What is the amount of interest expense (in Canadian Dollars)recorded for 2011?

A)$250,080
B)$249,920
C)$287,175
D)$287,250

Question 25

The following information pertains to questions
RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN.
In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank.
Significant dates pertaining to this transaction are as follows:
At what amount (in Canadian Dollars)would RXN's sale be recorded initially?

A)$349,500
B)$343,500
C)$348,000
D)$350,400

Question 26

The following information pertains to questions
RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN.
In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank.
Significant dates pertaining to this transaction are as follows:
At what amount (in Canadian Dollars)would the forward contract with the bank be recorded?

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

Question 27

The following information pertains to questions
On July 1,2014,when the spot rate was US$1=CDN$1.1445,North Inc,based in the Alberta,ordered merchandise from an American supplier for US$600,000.Delivery was scheduled for the month of September,with payment to be made in full by December31,2014.
Once the order was placed,North entered into a forward contract with its bank to purchase US$600,000 in December at the forward rate of $1.1625CDN.The merchandise was received on October 1,2014,when the spot rate was US$1=$1.1575CDN.On October 31,the company's year-end,the spot rate was $1.1690.North purchased the U.S.dollars to pay its supplier on November 15,2014 when the spot rate was $1.1725CDN.
What is the amount of the forward contract?

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

Question 28

The following information pertains to questions
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows:
By what amount (in Canadian Dollars)would ABC have to adjust its Loan Liability on December 31,2011 as a result of the year's foreign exchange rate fluctuations?

A)Nil.
B)$2,500 increase.
C)$2,500 decrease.
D)$3,500 decrease.

Question 29

The following information pertains to questions
On July 1,2014,when the spot rate was US$1=CDN$1.1445,North Inc,based in the Alberta,ordered merchandise from an American supplier for US$600,000.Delivery was scheduled for the month of September,with payment to be made in full by December31,2014.
Once the order was placed,North entered into a forward contract with its bank to purchase US$600,000 in December at the forward rate of $1.1625CDN.The merchandise was received on October 1,2014,when the spot rate was US$1=$1.1575CDN.On October 31,the company's year-end,the spot rate was $1.1690.North purchased the U.S.dollars to pay its supplier on November 15,2014 when the spot rate was $1.1725CDN.
At what amount would North record its Inventory when received from its supplier?

A)$686,700
B)$697,500
C)$694,500
D)$703,500

Question 30

The following information pertains to questions
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows:
What is the amount of the foreign exchange gain or loss recognized on the 2010 Income Statement?

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

Question 31

The following information pertains to questions
RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN.
In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank.
Significant dates pertaining to this transaction are as follows:
What is the amount of RXN's foreign exchange gain or loss prior to its hedge?

A)Nil
B)A $6000 loss.
C)A $6,000 gain.
D)A $4,500 gain.

Question 32

The following information pertains to questions
RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN.
In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank.
Significant dates pertaining to this transaction are as follows:
How much (in Canadian Dollars)will RXN expect to receive from the bank when its forward contract is settled?

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

Question 33

The following information pertains to questions
RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN.
In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank.
Significant dates pertaining to this transaction are as follows:
What adjustment (if any)would be required to RXN's year-end accounts receivable balance?

A)No adjustment is required.
B)a $4,500 increase.
C)a $3,000 decrease.
D)a $4,500 decrease.

Question 34

The following information pertains to questions
RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN.
In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank.
Significant dates pertaining to this transaction are as follows:
What is the amount of the discount recorded on the contract?

A)$1,500
B)$1,000
C)$4,000
D)$3,000

Question 35

The following information pertains to questions
On July 1,2014,when the spot rate was US$1=CDN$1.1445,North Inc,based in the Alberta,ordered merchandise from an American supplier for US$600,000.Delivery was scheduled for the month of September,with payment to be made in full by December31,2014.
Once the order was placed,North entered into a forward contract with its bank to purchase US$600,000 in December at the forward rate of $1.1625CDN.The merchandise was received on October 1,2014,when the spot rate was US$1=$1.1575CDN.On October 31,the company's year-end,the spot rate was $1.1690.North purchased the U.S.dollars to pay its supplier on November 15,2014 when the spot rate was $1.1725CDN.
What is the journal entry required to record the ordering of North's merchandise?

Question 36

The following information pertains to questions
On July 1,2014,when the spot rate was US$1=CDN$1.1445,North Inc,based in the Alberta,ordered merchandise from an American supplier for US$600,000.Delivery was scheduled for the month of September,with payment to be made in full by December31,2014.
Once the order was placed,North entered into a forward contract with its bank to purchase US$600,000 in December at the forward rate of $1.1625CDN.The merchandise was received on October 1,2014,when the spot rate was US$1=$1.1575CDN.On October 31,the company's year-end,the spot rate was $1.1690.North purchased the U.S.dollars to pay its supplier on November 15,2014 when the spot rate was $1.1725CDN.
What is the amount of the premium on the forward contract?

A)Nil
B)$11,000
C)$3,900
D)$6,000

Question 37

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

A)The placement of large amounts of Canadian funds with a bank in Zurich,Switzerland.
B)A foreign currency futures contract.
C)A foreign currency option contract.
D)A forward exchange contract.

Question 38

The following information pertains to questions
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows:
What is the amount of foreign exchange gain or loss recognized on the 2011 Income Statement?

A)$800 gain
B)$800 loss
C)$2,500 gain
D)$2,500 loss

Question 39

The following information pertains to questions
RXN's year-end is on December 31.On November 1,2014 when the U.S.dollar was worth $1.165 CDN,RXN sold merchandise to an American client for $300,000.Full payment of this invoice was expected by January 31,2015.On December 1,the spot rate was $1.1450 CDN and the three-month forward rate was $1.1250 CDN.
In order to minimize its Foreign Exchange risk and exposure,RXN entered into a contract with its bank on December 1,2014 to deliver $300,000 U.S.in three months time.The spot rate at year-end was $1.16 CDN.On March 1,2015,RXN received the $300,000 U.S.from its client and settled its contract with the bank.
Significant dates pertaining to this transaction are as follows:
What is the amount of the hedge discount amortized during 2014?

A)Nil
B)$1,000
C)$1,333
D)$4,000

Question 40

The following information pertains to questions
XYZ Corp has a calendar year end.On January 1,2010,the company borrowed $5,000,000 U.S.dollars from an American Bank.The loan is to be repaid on December 31,2013 and requires interest at 5% to be paid every December 31.The loan and applicable interest are both to be repaid in U.S.dollars.XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan: The average rates in effect for 2010 and 2011 were as follows:
What is the amount of interest paid (in Canadian Dollars)during 2010?

A)$250,000
B)$372,500
C)$287,330
D)$287,250

Question 41

The following information pertains to questions
On July 1,2014,when the spot rate was US$1=CDN$1.1445,North Inc,based in the Alberta,ordered merchandise from an American supplier for US$600,000.Delivery was scheduled for the month of September,with payment to be made in full by December31,2014.
Once the order was placed,North entered into a forward contract with its bank to purchase US$600,000 in December at the forward rate of $1.1625CDN.The merchandise was received on October 1,2014,when the spot rate was US$1=$1.1575CDN.On October 31,the company's year-end,the spot rate was $1.1690.North purchased the U.S.dollars to pay its supplier on November 15,2014 when the spot rate was $1.1725CDN.
What amount (in Canadian dollars)did North pay to its American supplier for the purchase of the inventory?

A)$686,700
B)$697,500
C)$694,500
D)$703,500

Question 42

The following information pertains to questions
On July 1,2014,when the spot rate was US$1=CDN$1.1445,North Inc,based in the Alberta,ordered merchandise from an American supplier for US$600,000.Delivery was scheduled for the month of September,with payment to be made in full by December31,2014.
Once the order was placed,North entered into a forward contract with its bank to purchase US$600,000 in December at the forward rate of $1.1625CDN.The merchandise was received on October 1,2014,when the spot rate was US$1=$1.1575CDN.On October 31,the company's year-end,the spot rate was $1.1690.North purchased the U.S.dollars to pay its supplier on November 15,2014 when the spot rate was $1.1725CDN.
What is the amount of North's deferred exchange gain or loss arising from this transaction?

A)Nil
B)$7,800 Gain
C)$3,900 Loss
D)$4,000 Gain

Question 43

The following information pertains to questions
Canada Corp.sells raw lumber to a number of countries around the world.On December 1,2013 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 1,2014.
On December 3,2013 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1Yen=$1.185CDN.
Canada Corp received the payment from its Japanese client on March 1,2014.Canada Corp's year end is on December 31.
Selected spot rates were as follows:
Prepare the journal entries to record the receipt of the 500,000 Yen on March 1,2014,assuming that Canada Corp did not enter into a hedge transaction in December 2013.

Question 44

IAS 39 on speculative forward exchange contracts requires that the contract be:

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.

Question 45

The following information pertains to questions
ABC Inc.sells thermal compressors throughout the world.On January 1,2013,the company sold 500 compressors to an American supplier at a total cost $60,000 U.S.when the spot rate was US$1=$1.1750CDN.Payment on the invoice was due by May 1,2013.ABC entered into a 4-month hedge with its bank at a forward rate of $1.20CDN on January 2,2013.ABC's year-end is on January 31,and on that date in 2013,the spot rate in effect was $1.1825CDN.
ABC received payment from its supplier on May 1,2013 when the spot rate was US$1=$1.1975 CDN.
What is the required adjustment to ABC's accounts receivable at year-end as a result of this transaction?

A)Nil.
B)$450 Increase
C)$900 Increase
D)$450 Decrease

Question 46

The following information pertains to questions
ABC Inc.sells thermal compressors throughout the world.On January 1,2013,the company sold 500 compressors to an American supplier at a total cost $60,000 U.S.when the spot rate was US$1=$1.1750CDN.Payment on the invoice was due by May 1,2013.ABC entered into a 4-month hedge with its bank at a forward rate of $1.20CDN on January 2,2013.ABC's year-end is on January 31,and on that date in 2013,the spot rate in effect was $1.1825CDN.
ABC received payment from its supplier on May 1,2013 when the spot rate was US$1=$1.1975 CDN.
What amount (in Canadian dollars)should ABC expect to receive from its bank on May 1,2013?

A)$72,000
B)$70,500
C)$70,950
D)$71,850

Question 47

The following information pertains to questions
ABC Inc.sells thermal compressors throughout the world.On January 1,2013,the company sold 500 compressors to an American supplier at a total cost $60,000 U.S.when the spot rate was US$1=$1.1750CDN.Payment on the invoice was due by May 1,2013.ABC entered into a 4-month hedge with its bank at a forward rate of $1.20CDN on January 2,2013.ABC's year-end is on January 31,and on that date in 2013,the spot rate in effect was $1.1825CDN.
ABC received payment from its supplier on May 1,2013 when the spot rate was US$1=$1.1975 CDN.
What is the amount of the premium on this contract?

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

Question 48

The following information pertains to questions
On January 1,2011,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 31,2013.The following exchange rates were applicable between 2011 and 2013.The rates indicate the cost (in Canadian dollars)of purchasing 1 U.S.dollar:
Prepare GRL's journal entries for each of 2011,2012 and 2013.

Question 49

The following information pertains to questions
Compucat is a Canadian manufacturing company that produces inexpensive personal and laptop computers.The company has been generating progressively more of its sales from foreign markets.During 2013,the company started purchasing most of its components from a supplier in Germany.
To deal with the uncertainty associated with foreign exchange fluctuations,all of Compucat's foreign currency denominated receivables and payables are hedged with contracts with the company's bank.Compucat's year-end is on December 31.The following transactions took place in 2013:
On September 1,2013,Compucat purchased components from its German supplier for 100,000 Euros.On that date AMC entered into a forward contract for 100,000 Euros at the 60 day forward rate of 1Euro=$1.50 CDN.Compucat paid its supplier in full on December 1,2013.
On December 1,2013 Compucat also shipped a batch of laptop computers to an American client for $250,000US.The invoice required that Compucat receive its payment in full by January 31,2013.On that date,the company entered into a forward contract for $250,000US at the two-month forward rate of $1US=$1.25CDN.
The dates and exchange rates relevant to these transactions are shown below.
Prepare the December 31,2013 Balance Sheet Presentation of the Receivable from the American client and the accounts associated with the hedge.

Question 50

The following information pertains to questions
Compucat is a Canadian manufacturing company that produces inexpensive personal and laptop computers.The company has been generating progressively more of its sales from foreign markets.During 2013,the company started purchasing most of its components from a supplier in Germany.
To deal with the uncertainty associated with foreign exchange fluctuations,all of Compucat's foreign currency denominated receivables and payables are hedged with contracts with the company's bank.Compucat's year-end is on December 31.The following transactions took place in 2013:
On September 1,2013,Compucat purchased components from its German supplier for 100,000 Euros.On that date AMC entered into a forward contract for 100,000 Euros at the 60 day forward rate of 1Euro=$1.50 CDN.Compucat paid its supplier in full on December 1,2013.
On December 1,2013 Compucat also shipped a batch of laptop computers to an American client for $250,000US.The invoice required that Compucat receive its payment in full by January 31,2013.On that date,the company entered into a forward contract for $250,000US at the two-month forward rate of $1US=$1.25CDN.
The dates and exchange rates relevant to these transactions are shown below.
Prepare the 2013 journal entries to record the above transactions.In addition,prepare any adjusting journal entries that you deem necessary.

Question 51

The following information pertains to questions
ABC Inc.sells thermal compressors throughout the world.On January 1,2013,the company sold 500 compressors to an American supplier at a total cost $60,000 U.S.when the spot rate was US$1=$1.1750CDN.Payment on the invoice was due by May 1,2013.ABC entered into a 4-month hedge with its bank at a forward rate of $1.20CDN on January 2,2013.ABC's year-end is on January 31,and on that date in 2013,the spot rate in effect was $1.1825CDN.
ABC received payment from its supplier on May 1,2013 when the spot rate was US$1=$1.1975 CDN.
What is the amount of the forward contract in Canadian dollars?

A)$72,000
B)$70,500
C)$70,950
D)$71,850

Question 52

The following information pertains to questions
Canada Corp.sells raw lumber to a number of countries around the world.On December 1,2013 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 1,2014.
On December 3,2013 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1Yen=$1.185CDN.
Canada Corp received the payment from its Japanese client on March 1,2014.Canada Corp's year end is on December 31.
Selected spot rates were as follows:
Prepare a partial Balance Sheet for Canada Corp on December 31,2013 showing the account receivable from the Japanese client as well as the accounts associated with the hedge.

Question 53

The following information pertains to questions
Canada Corp.sells raw lumber to a number of countries around the world.On December 1,2013 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 1,2014.
On December 3,2013 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1Yen=$1.185CDN.
Canada Corp received the payment from its Japanese client on March 1,2014.Canada Corp's year end is on December 31.
Selected spot rates were as follows:
Prepare any and all journal entries arising from this transaction.

Question 54

The following information pertains to questions
Prairie Dog Inc.borrowed $10,000,000 U.S.on January 1,2011 at an annual rate of 8%.The loan is due December 31,2014 and interest is payable annually each December 31.The exchange rates on selected dates throughout the life of the loan are shown below:
Prepare the journal entries for 2011.

Question 55

Which statement is NOT correct?

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.The 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 56

The following information pertains to questions
On July 1,2013,Great White North (GWN)Inc.purchased merchandise from a supplier in the U.S.for $800,000 with terms requiring full payment by October 31,2013.On July 2,GWN entered into a forward contract to purchase $800,000 U.S.on October 31,2013 at a rate of $1.2275CDN.
On October 31,GWN paid its supplier in full.Selected dates and spot rates are shown below:
Prepare any and all Journal Entries you deem necessary to record the above transaction.

Question 57

The following information pertains to questions
Prairie Dog Inc.borrowed $10,000,000 U.S.on January 1,2011 at an annual rate of 8%.The loan is due December 31,2014 and interest is payable annually each December 31.The exchange rates on selected dates throughout the life of the loan are shown below:
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.

Question 58

The following information pertains to questions
ABC Inc.sells thermal compressors throughout the world.On January 1,2013,the company sold 500 compressors to an American supplier at a total cost $60,000 U.S.when the spot rate was US$1=$1.1750CDN.Payment on the invoice was due by May 1,2013.ABC entered into a 4-month hedge with its bank at a forward rate of $1.20CDN on January 2,2013.ABC's year-end is on January 31,and on that date in 2013,the spot rate in effect was $1.1825CDN.
ABC received payment from its supplier on May 1,2013 when the spot rate was US$1=$1.1975 CDN.
What is the required adjustment to ABC's premium on this contract at year-end?

A)Nil.
B)$1,500 Increase
C)$375 Increase
D)$375 Decrease

Question 59

The following information pertains to questions
On July 1,2013,Great White North (GWN)Inc.purchased merchandise from a supplier in the U.S.for $800,000 with terms requiring full payment by October 31,2013.On July 2,GWN entered into a forward contract to purchase $800,000 U.S.on October 31,2013 at a rate of $1.2275CDN.
On October 31,GWN paid its supplier in full.Selected dates and spot rates are shown below:
Prepare a July 31,2013 Partial Trial Balance,indicating how each Journal Entry would appear on the Financial Statements.

Question 60

The following information pertains to questions
On January 1,2011,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 31,2013.The following exchange rates were applicable between 2011 and 2013.The rates indicate the cost (in Canadian dollars)of purchasing 1 U.S.dollar:
Compute the carrying value of the investment at the end of each year:

Question 61

Prepare the journal entries to record the receipt of the $600,000 U.S.on March 1,2013,assuming that Maplehauff Inc did not enter into a hedge transaction in December 2012.

Question 62

Prepare a partial Balance Sheet for Maplehauff Inc.on December 31,2012 showing the Account Receivable from the American client as well as the accounts associated with the hedge.