Question 1

If a sale on account by a U.S.company is made with a foreign company,and the U.S.company has no foreign currency risk,then

Accepted Answer

A) the U.S.company has measured the transaction in U.S.dollars. 
B) the U.S.company has denominated the transaction in U.S.dollars. 
C) the foreign company has measured the transaction in their own currency. 
D) the foreign company has denominated the transaction in their own currency.

Question 2

Johnson Corporation (a U.S.company)began operations on December 1,2015,when the owner contributed $100,000 of his own money to establish the business.Johnson then had the following import and export transactions with unaffiliated Mexican companies:
  $$\text { December 15, } 2015 \quad \text { Sold 60\% of inventory acquired on 12/12/15 for 120,000 pesos on account. Invoice \quad d }$$ $$\text { Janury 1, } 2016 \quad \text { Acquired and paid the 150,00t pesos owed to the Mexican supplier. }$$ Janury 15,2016 $\quad $Collected the 120,001 pesos from the Mexican customer and immediately converted them into U. S dollars. The following exchange rates apply:
 $$\begin{array} { l l } 
 \underline {\text { Date} } & \underline { \text {Rate } } \
\text { December 12 } & \$ .11 = 1 \text { peso } \
\text { December 15 } & \$ 12 = 1 \text { peso } \
\text { December 31 } & \$ .13 = 1 \text { peso } \
\text { January 1 } & \$ .14 = 1 \text { peso } \
\text { January 15 } & \$ .15 = 1 \text { peso }
\end{array}$$ Required:
1.What were Sales in the income statement for the year ended December 31,2015?
2.What was the COGS associated with these sales?
3.What is the Accounts Payable balance in the balance sheet at December 31,2015?
4.What is the Inventory balance in the balance sheet at December 31,2015?

Accepted Answer

The answer of Johnson Corporation (a U.S.company)began operations on December...

Question 3

One reason corporations enter into a derivative contract is to reduce the vulnerability of their cash flows.

Accepted Answer

A) True 
 B)False

Question 4

A U.S.importer that purchased merchandise from a South Korean firm would be exposed to a net exchange gain on the unpaid balance if the

Accepted Answer

A) dollar weakened relative to the Korean won and the won was the denominated currency. 
B) dollar weakened relative to the Korean won and the dollar was the denominated currency. 
C) dollar strengthened relative to the Korean won and the won was the denominated currency. 
D) dollar strengthened relative to the Korean won and the dollar was the denominated currency.

Question 5

If a U.S.company is preparing a journal entry for a recent purchase,foreign-currency-denominated purchases must be measured in ________ at the purchase date using the foreign currency ________ rate on the purchase date.

Accepted Answer

A) foreign currency; spot 
B) foreign currency; future 
C) U.S.dollars; forward 
D) U.S.dollars; spot

Question 6

On May 1,2014,Deerfield Corporation purchased merchandise from a German firm for 78,000 euros when the spot rate for the euro was 1.48 euro per dollar.The account payable was denominated in the euro.Deerfield settled the account on August 1 when the spot rate for the euro was 1.39 euro per dollar.How much cash will Deerfield have to disburse to settle the account?

Accepted Answer

A) $52,702.72 
B) $56,115.11 
C) $108,420.00 
D) $115,440.00

Question 7

Tank Corporation,a U.S.manufacturer,has a June 30 fiscal year end.Tank sold goods to their customer in Columbia on May 27,2014 for 18,000,000 Columbian pesos.The customer agreed to pay pesos in 60 days.When the customer wired the funds to Tank on July 26,Tank held them in their bank account until July 31 before selling them and converting them to U.S.dollars.The following exchange rates apply:
  Required:
Record the journal entries related to the dates listed above.If no entry is required,state "no entry."

Accepted Answer

The answer of Tank Corporation,a U.S.manufacturer,has a June 30 fiscal...

Question 8

Use the following information to answer the question(s) below.

On November 1, 2014, Rolleks Corporation sold merchandise to Watchem Corporation, a Swiss firm. Rolleks measured and recorded the account receivable from the sale at $107,100. Watchem paid for this account on November 30, 2014. Spot rates for Swiss francs on November 1 and November 30, respectively, were $1.05 and $1.02.

-If the sale of merchandise is denominated in dollars,the November 30 entry to record receipt of the payment from Watchem included a

Accepted Answer

A) credit to Accounts Receivable for $104,040. 
B) credit to Exchange Gain for $3,060. 
C) debit to Cash for $107,100. 
D) debit to Exchange Loss for $3,060.

Question 9

Swaps are contracts to exchange an ongoing stream of cash flows.

Accepted Answer

A) True 
 B)False

Question 10

The exchange rates between the Australian dollar and the U.S.dollar were as follows:  This chart shows a

Accepted Answer

A) strengthening Australian Dollar which makes it less expensive for Americans to buy Australian goods. 
B) weakening Australian dollar which makes it less expensive for Americans to buy Australian goods. 
C) strengthening Australian dollar which makes it more expensive for Americans to buy Australian goods. 
D) weakening Australian dollar which makes it more expensive for Americans to buy Australian goods.

Question 11

At the date the transaction is recognized,the transaction shall be measured and recorded in

Accepted Answer

A) the functional currency of the recording entity by using the exchange rate in effect at that date. 
B) the functional currency of the foreign country in which it is denominated. 
C) the functional currency of the foreign country in which it is measured. 
D) the functional currency of the recording entity.

Question 12

Piel Corporation (a U.S.company)began operations on January 1,2015,when common stock was issued for $250,000.In the first two months of operations,Piel had the following transactions:
        The following exchange rates apply:
  Required:
Complete the summary income statement and balance sheet for the month ended January 31,2015 and February 28,2015,assuming there were no other transactions.

Accepted Answer

The answer of Piel Corporation (a U.S.company)began operations on January...

Question 13

Futures contracts are very standardized and more easy to trade in the markets than forward contracts.

Accepted Answer

A) True 
 B)False

Question 14

With respect to exchange rates,which of the following statements is true?

Accepted Answer

A) An official exchange rate is the "market" rate resulting from the supply and demand for a currency. 
B) A floating exchange rate is the "market" rate resulting from the supply and demand for a currency. 
C) A government cannot set an exchange rate for their currency that is higher (weakens their currency)than the quoted interbank market rate. 
D) A government cannot set an exchange rate for their currency that is lower (strengthens their currency)than the quoted interbank market rate.

Question 15

On April 1,2014,Button Industries enters into an agreement with Bows Incorporated to lock in the price of cotton.Button agrees to purchase (and Bows agrees to sell)100,000 pounds of cotton at $1.19 per pound,six months from the date of agreement.On October 1,2014,the price of cotton is $1.17 per pound.The contract allows for net settlement.
Required:
Determine the net settlement on the forward contract.

Accepted Answer

The answer of On April 1,2014,Button Industries enters into an...

Question 16

Forward contracts are very standardized and easily traded in the markets.

Accepted Answer

A) True 
 B)False

Question 17

Transactions between businesses of different countries,the amounts for receivables and payables are typically denominated in the local currency of either the buying entity or the selling entity.

Accepted Answer

A) True 
 B)False

Question 18

The table below provides either a direct or indirect quote for a given foreign currency unit,and the related units of that foreign currency.
  Required:
Complete the table,indicating the amount of U.S.Dollars that is the equivalent of the foreign currency shown,based on the direct or indirect quote provided.

Accepted Answer

The answer of The table below provides either a direct...

Question 19

Use the following information to answer the question(s) below.

On October 4, 2014, Sooty Corporation borrowed 250,000 British pounds from a London bank, evidenced by an interest-bearing note payable due in one year. The note was payable in pounds. Exchange rates for pounds were:

-What is the final amount of the loan payable that Sooty repaid?

Accepted Answer

A) $250,000 
B) $287,500 
C) $397,500 
D) $402,500

Question 20

Plymouth Corporation (a U.S.company)began operations on September 1,2014,when the owner borrowed $250,000 to establish the business.Plymouth then had the following import and export transactions with unaffiliated Chinese companies:
     The following exchange rates apply:
 $\begin{array}{ll}
 \underline{\text { Date }} & \underline{\text { Rate }} \
\text { September } 6 & \$ 0.1544=1 \text { yuan } \
\text { September } 18 & \$ 0.1607=1 \text { yuan } \
\text { September } 30 & \$ 0.1591=1 \text { yuan } \
\text { October } 5 & \$ 0.1578=1 \text { yuan } \
\text { October } 18 & \$ 0.1593=1 \text { yuan }
\end{array}$
 Required:
1.What were Sales in the September month-end income statement?
2.What was the COGS associated with these sales?
3.What is the Accounts Receivable balance in the balance sheet at September 30,2014?
4.What is the Inventory balance in the balance sheet at September 30,2014?
5.What is the Exchange gain or loss that will be reported for the month of September?

Accepted Answer

The answer of Plymouth Corporation (a U.S.company)began operations on September...

Exam 12: Derivatives and Foreign Currency: Concepts and Common Transactions

If a sale on account by a U.S.company is made with a foreign company,and the U.S.company has no foreign currency risk,then

One reason corporations enter into a derivative contract is to reduce the vulnerability of their cash flows.

A U.S.importer that purchased merchandise from a South Korean firm would be exposed to a net exchange gain on the unpaid balance if the

If a U.S.company is preparing a journal entry for a recent purchase,foreign-currency-denominated purchases must be measured in at the purchase date using the foreign currency rate on the purchase date.

Swaps are contracts to exchange an ongoing stream of cash flows.

The exchange rates between the Australian dollar and the U.S.dollar were as follows: This chart shows a

At the date the transaction is recognized,the transaction shall be measured and recorded in

Futures contracts are very standardized and more easy to trade in the markets than forward contracts.

With respect to exchange rates,which of the following statements is true?

Forward contracts are very standardized and easily traded in the markets.

Transactions between businesses of different countries,the amounts for receivables and payables are typically denominated in the local currency of either the buying entity or the selling entity.