Question 1

What amount of foreign exchange gain or loss should be recorded on December 31?

Accepted Answer

A)  $300 gain. 
B)  $300 loss. 
C)  $ 0. 
D)  $941 loss. 
E)  $941 gain.

Question 2

Assuming a forward contract was entered into on December 16, what would be the net impact on Car Corp.'s 2019 income statement related to this transaction?

Accepted Answer

A)  $ 500 (gain). 
B)  $ 500 (loss). 
C)  $ 300 (gain). 
D)  $ 300 (loss). 
E)  $0.

Question 3

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 4

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

Accepted Answer

The answer of How does a foreign currency forward contract...

Question 5

For what amount should Brisco's Accounts Payable be credited on May 8?

Accepted Answer

A)  $2,500,000. 
B)  $2,440,000. 
C)  $1,600,000. 
D)  $1,639,344. 
E)  $1,666,667.

Question 6

How much US $ will it cost Brisco to finally pay the payable on June 7?

Accepted Answer

A)  $1,666,667. 
B)  $2,440,000. 
C)  $2,520,000. 
D)  $2,500,000. 
E)  $2,400,000.

Question 7

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.

Accepted Answer

The answer of Yelton Co.just sold inventory for 80,000 euros,...

Question 8

What is the amount of option expense for 2019 from these transactions?

Accepted Answer

A)  $1,000. 
B)  $1,600. 
C)  $2,500. 
D)  $2,600. 
E)  $ 0.

Question 9

How much Foreign Exchange Gain or Loss should Brisco record on May 31?

Accepted Answer

A)  $2,520,000 gain. 
B)  $ 20,000 gain. 
C)  $ 20,000 loss. 
D)  $ 80,000 gain. 
E)  $ 80,000 loss.

Question 10

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

Accepted Answer

The answer of What amount will Coyote Corp.report in its...

Question 11

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 12

Frankfurter Company, a U.S.company, had a ruble receivable from exports to Russia and a euro payable resulting from imports from Italy.Frankfurter recorded foreign exchange loss related to both its ruble receivable and euro payable.Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?

Accepted Answer

The answer of Frankfurter Company, a U.S.company, had a ruble...

Question 13

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 14

What amount will Woolsey include as an option expense in net income for the period July 24 to October 24?

Accepted Answer

A)  $ 4,000. 
B)  $ 5,000. 
C)  $10,000. 
D)  $12,000. 
E)  $14,000.

Question 15

Old Colonial Corp.(a U.S.company) made a sale to a foreign customer on September 15, 2018, for 100,000 stickles.Payment was received on October 15, 2018.The following exchange rates applied:
  Required:
Prepare all journal entries for Old Colonial Corp.in connection with this sale assuming that the company closes its books on September 30 to prepare interim financial statements.

Accepted Answer

The answer of Old Colonial Corp.(a U.S.company) made a sale...

Question 16

(A.) Assume this hedge is designated as a cash flow hedge.Prepare the journal entries relating to the transaction and the forward contract.
(B.) Compute the effect on 2018 net income.
(C.) Compute the effect on 2019 net income.

Accepted Answer

The answer of (A.) Assume this hedge is designated as...

Question 17

Compute the fair value of the foreign currency option at February 1, 2019.

Accepted Answer

A)  $6,000. 
B)  $4,500. 
C)  $3,000. 
D)  $7,500. 
E)  $1,500.

Question 18

Which is a true statement regarding the fundamental requirement of accounting for derivatives?

Accepted Answer

A)  Derivatives are reported on the balance sheet only as an asset. 
B)  Derivatives are reported on the balance sheet only as a liability. 
C)  Changes in derivative cost basis are recorded in the asset value. 
D)  Changes in derivative fair value are included in comprehensive income. 
E)  Changes in derivative cost basis are recorded in the liability value.

Question 19

Authoritative literature provides guidance for hedges of the following sources of foreign exchange risk. I.Recognized foreign currency denominated assets and liabilities.
II.Unrecognized foreign currency firm commitments.
III.Forecasted foreign currency denominated transactions.

Accepted Answer

A)  I only 
B)  I and II 
C)  II only 
D)  II and III 
E)  I, II, and III

Question 20

Compute the U.S.dollars received on February 1, 2019.

Accepted Answer

A)  $138,000. 
B)  $136,500. 
C)  $145,500. 
D)  $141,000 
E)  $142,500.

Exam 9: A: Foreign Currency Transactions and Hedging Foreign Exchange Risk