Question 1

Accepted Answer

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

Question 2

GWN has a July 31st year end. On that date the forward rate for US dollars for three months was CDN $1.2225. Prepare a July 31, 2013 Partial Trial Balance, indicating how each account balance would appear on the company's financial statements.

Accepted Answer

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

Question 3

On July 1, 2014, when the spot rate was US$1 = CDN$1.1445, North Inc., based in 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 on November 15, 2014. Once the order was placed, North entered into a forward contract with its bank to purchase US$600,000 on the settlement date at the forward rate of $1.1625CDN. The forward contract was designated as a cash flow hedge of the cash flow required to settle with the American supplies. 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. The forward rate to November 15, 2014, was $1.165CDN on October 1 and $1.17CDN on October 31. What is the amount of the forward contract in Canadian dollars?

Accepted Answer

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

Question 4

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 the date of the sale, the company entered into a forward contract for $250,000US at the two-month forward rate of $1US = $1.25CDN. This forward contract was designated to be a fair value hedge of the amount due from the American customer. 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.

Accepted Answer

The answer of  On December 1, 2013 Compucat also...

Question 5

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

Accepted Answer

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

Question 6

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?

Accepted Answer

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

Question 7

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. The forward contract was designated as a hedge of the fair value of the amount due to the supplier. On October 31, GWN paid its supplier in full. Selected dates and spot rates are shown below:  GWN has a July 31st year end. On that date the forward rate for US dollars for three months was CDN $1.2225. Prepare the journal entries assuming that no forward contract was entered into.

Accepted Answer

The answer of On July 1, 2013, Great White North...

Question 8

Accepted Answer

A)  $3,900 loss. 
B)  Nil. 
C)  $3,000 gain. 
D)  $3,900 gain.

Question 9

Accepted Answer

The answer of ...

Question 10

Which of the following statements is correct?

Accepted Answer

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 are correct.

Question 11

Accepted Answer

The answer of ...

Question 12

Compute the carrying value of the investment at the end of each year:

Accepted Answer

The answer of   Compute the carrying value of...

Question 13

Which of the following provides the best hedge against exchange variations in the value of a stream of income in a foreign currency where the payments are expected to occur in equal amounts over a period of five years?

Accepted Answer

A)  Borrowing in the foreign currency with repayment due at the end of the five years. 
B)  Borrowing in Canadian dollars with repayment due at the end of the five years. 
C)  Borrowing in the foreign currency with annual repayments equal to the expected annual revenue cash flows. 
D)  Borrowing in Canadian dollars with annual repayments equal to the expected annual
Revenue cash flows.

Question 14

Accepted Answer

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

Question 15

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 exchange gain or loss from the recognition of the hedge discount recognized during 2014?

Accepted Answer

A)  A loss of $4,500. 
B)  A loss of $3,000. 
C)  Nil. 
D)  A gain of $4,500.

Question 16

Accepted Answer

A)  A liability of $6,000. 
B)  Nil. 
C)  An asset of $6,000. 
D)  An asset of $10,800

Question 17

Accepted Answer

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

Question 18

Accepted Answer

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. This 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 19

Prepare any and all journal entries arising from this transaction.

Accepted Answer

The answer of   Prepare any and all journal...

Question 20

Accepted Answer

A)  $360 loss. 
B)  $120 gain. 
C)  $360 gain. 
D)  $480 gain.

Exam 10: Foreign Currency Transactions