Question 1

What are the two separate transactions that require recording under the two-transaction perspective?

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Question 2

Mills Inc.had a receivable from a foreign customer that is due in the local currency of the customer (stickles).On December 31, 2018, this receivable for §200,000 was correctly included in Mills' balance sheet at $132,000.When the receivable was collected on February 15, 2019, the U.S.dollar equivalent was $144,000.In Mills' 2019 consolidated income statement, how much should have been reported as a foreign exchange gain?

Accepted Answer

A)  $ 0. 
B)  $36,000. 
C)  $48,000. 
D)  $10,000. 
E)  $12,000.

Question 3

A U.S.company sells merchandise to a foreign company denominated in the foreign currency.Which of the following statements is true?

Accepted Answer

A)  If the foreign currency appreciates, a foreign exchange gain will result. 
B)  If the foreign currency depreciates, a foreign exchange gain will result. 
C)  No foreign exchange gain or loss will result. 
D)  If the foreign currency appreciates, a foreign exchange loss will result. 
E)  Any gain or loss will be included in comprehensive income.

Question 4

What was the impact on Mosby's 2019 net income as a result of this fair value hedge of a firm commitment?

Accepted Answer

A)  $ 1,800.00 decrease. 
B)  $ 2,500.00 increase. 
C)  $ 2,500.00 decrease. 
D)  $188,760.60 increase. 
E)  $188,760.60 decrease.

Question 5

Yelton Co.just sold inventory for 80,000 euros, which Yelton will collect in sixty days.Briefly describe a hedging transaction Yelton could engage in to reduce its risk of unfavorable exchange rates.

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Question 6

How does a foreign currency forward contract differ from a foreign currency option?

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Question 7

How much foreign exchange gain or loss should be included in Shannon's 2017 income statement?

Accepted Answer

A)  $3,000 gain. 
B)  $3,000 loss. 
C)  $6,000 gain. 
D)  $6,000 loss. 
E)  $7,000 gain.

Question 8

Alpha, Inc., a U.S.company, had a receivable from a customer that was denominated in Mexican pesos.On December 31, 2017, this receivable for 75,000 pesos was correctly included in Alpha's balance sheet at $8,000.The receivable was collected on March 2, 2018, when the U.S.equivalent was $6,900.How much foreign exchange gain or loss will Alpha record on the income statement for the year ended December 31, 2018?

Accepted Answer

A)  $1,100 loss. 
B)  $1,100 gain. 
C)  $6,900 loss. 
D)  $6,900 gain. 
E)  $8,000 gain.

Question 9

What was the net impact on Mattie's 2018 income as a result of this fair value hedge of a firm commitment?

Accepted Answer

A)  $1,800.00 decrease. 
B)  $1,760.60 decrease. 
C)  $2,240.40 decrease. 
D)  $1,660.40 increase. 
E)  $2,240.60 increase.

Question 10

What is the 2019 effect on net income as a result of these transactions?

Accepted Answer

A)  $195,000 
B)  $201,600 
C)  $201,000 
D)  $202,600 
E)  $203,000

Question 11

What was the impact on Mosby's 2018 net income as a result of this fair value hedge of a firm commitment?

Accepted Answer

A)  $1,760.60 decrease. 
B)  $1,960.60 decrease. 
C)  $1,000.00 decrease. 
D)  $1,760.60 increase. 
E)  $1,960.60 increase.

Question 12

Which of the following statements is true concerning hedge accounting?

Accepted Answer

A)  Hedges of foreign currency firm commitments are used for future sales only. 
B)  Hedges of foreign currency firm commitments are used for future purchases only. 
C)  Hedges of foreign currency firm commitments are used for current sales or purchases. 
D)  Hedges of foreign currency firm commitments are used for future sales or purchases. 
E)  Hedges of foreign currency firm commitments are entered into for speculative purposes.

Question 13

What journal entry should Eagle prepare on December 31, 2018?

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Question 14

What amount will Coyote Corp.report in its 2018 balance sheet for Accounts receivable?

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Question 15

What was the overall result of having entered into this hedge of exposure to foreign exchange risk?

Accepted Answer

A)  $0 
B)  $9,000 net loss on the option. 
C)  $9,000 net gain on the option. 
D)  $2,000 net gain on the option. 
E)  $2,000 net loss.

Question 16

On December 1, 2018, Joseph Company, a U.S.company, entered into a three-month forward contract to purchase 50,000 pesos on March 1, 2019, as a fair value hedge of a foreign currency denominated account payable.The following U.S.dollar per peso exchange rates apply:  Joseph's incremental borrowing rate is 12 percent.The present value factor for two months at an annual interest rate of 12 percent is .9803.Which of the following is included in Joseph's December 31, 2018 balance sheet for the forward contract?

Accepted Answer

A)  $5,146.58 asset. 
B)  $5,146.58 liability. 
C)  $ 500.00 liability. 
D)  $ 490.15 asset. 
E)  $ 490.15 liability.

Question 17

What was the net increase or decrease in cash flow from having purchased the foreign currency option to hedge this exposure to foreign exchange risk?

Accepted Answer

A)  $0 
B)  $10,000 increase. 
C)  $10,000 decrease. 
D)  $20,000 increase. 
E)  $20,000 decrease.

Question 18

Which of the following approaches is used in the United States in accounting for foreign currency transactions?

Accepted Answer

A)  One-transaction perspective; defer foreign exchange gains and losses. 
B)  Two-transaction perspective; accrue foreign exchange gains and losses. 
C)  Three-transaction perspective; defer foreign exchange gains and losses. 
D)  One-transaction perspective; accrue foreign exchange gains and losses. 
E)  Two-transaction perspective; defer foreign exchange gains and losses.

Question 19

What happens when a U.S.company purchases goods denominated in a foreign currency and the foreign currency depreciates?

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Question 20

A U.S.company sells merchandise to a foreign company denominated in U.S.dollars.Which of the following statements is true?

Accepted Answer

A)  If the foreign currency appreciates, a foreign exchange gain will result. 
B)  If the foreign currency depreciates, a foreign exchange gain will result. 
C)  No foreign exchange gain or loss will result. 
D)  If the foreign currency appreciates, a foreign exchange loss will result. 
E)  If the foreign currency depreciates, a foreign exchange loss will result.

Exam 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk