Question 1

In which of the following situations is a gain or loss recorded on a commitment assets or liability which would not otherwise be recorded?

Accepted Answer

A)   A speculative forward contract.
B)   A fair value hedge of a firm commitment.
C)   A fair value hedge of a recognized monetary item.
D)   A cash flow hedge of a forecasted transaction. B

Question 2

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?

Accepted Answer

A)   The average rate.
B)   The closing rate.
C)   The spot rate.
D)   The forward rate. C

Question 3

Accepted Answer

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. D

Question 4

The average rates in effect for 2010 and 2011 were as follows:  What is the amount of interest paid (in Canadian Dollars) during 2011?

Accepted Answer

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

Question 5

Prepare any and all journal entries arising from this transaction.

Accepted Answer

The answer of   Prepare any and all journal...

Question 6

Accepted Answer

A)   $686,700.
B)   $693,000.
C)   $694,500.
D)   $696,000.

Question 7

Accepted Answer

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

Question 8

Accepted Answer

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

Question 9

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 as a result of revaluing the loan payable?

Accepted Answer

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

Question 10

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 March 1, 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 and the forward rate from December 31, 2014 to March 1, 2015 was $1.14 CDN. On March 1, 2015, RXN received the $300,000 U.S. from its client and settled its contract with the bank. The forward contract was to be accounted for as a fair value hedge of the US dollar receivable. Significant dates and exchange rates pertaining to this transaction are as follows:  What is the amount of the discount on the forward contract?

Accepted Answer

A)   $1,000.
B)   $1,500.
C)   $3,000.
D)   $6,000.

Question 11

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 March 1, 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 and the forward rate from December 31, 2014 to March 1, 2015 was $1.14 CDN. On March 1, 2015, RXN received the $300,000 U.S. from its client and settled its contract with the bank. The forward contract was to be accounted for as a fair value hedge of the US dollar receivable. Significant dates and exchange rates 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?

Accepted Answer

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

Question 12

Accepted Answer

A)   $300 decrease.
B)   Nil.
C)   $300 increase.
D)   $375 increase.

Question 13

Accepted Answer

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

Question 14

At what amount (in Canadian Dollars) would RXN's sale be recorded initially?

Accepted Answer

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

Question 15

Accepted Answer

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

Question 16

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

Accepted Answer

A)   $120 loss.
B)   Nil.
C)   $120 gain.
D)   $480 gain.

Question 17

On July 1, 2012, CDN purchased inventory from its main U.S. supplier, RNB Enterprises, at a cost of US$1,000. 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?

Accepted Answer

A)   $805 CDN.
B)   $810 CDN.
C)   $820 CDN.
D)   $820 US.

Question 18

GWN has a July 31st year end. On that date the forward rate for US dollars for three months was CDN $1.2225. Prepare any and all Journal Entries you deem necessary to record the above transaction.

Accepted Answer

The answer of   GWN has a July 31st...

Question 19

Accepted Answer

A)   A $15 exchange loss.
B)   A $10 exchange loss.
C)   Nil.
D)   A $10 exchange gain.

Question 20

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.

Accepted Answer

The answer of   Prepare a partial Balance Sheet...

Exam 10: Foreign Currency Transactions