Question 1

Prairie Dog Inc. borrowed US$10,000,000 on January 1, 2014 at an annual rate of 8%. The loan is due December 31, 2017 and interest is payable annually each December 31. The exchange rates on selected dates throughout the life of the loan are shown below: $$\begin{array} { | l | l | } 
\hline \text { January } 1,2014 & \text { CDN } \$ 1.4416 \
\hline \text { December } 31,2014 & \text { CDN } \$ 1.4325 \
\hline \text { December } 31,2015 & \text { CDN } \$ 1.4675 \
\hline \text { December } 31,2016 & \text { CDN } \$ 1.4436 \
\hline \text { December } 31,2017 & \text { CDN } \$ 1.4625 \
\hline
\end{array}$$ Assume that the average annual exchange rate was equal to the December 31S1U1P1stS1S1P0 spot rates.
-Prepare the journal entries for 2014.

Accepted Answer

The answer of Prairie Dog Inc. borrowed US$10,000,000 on January...

Question 2

What amount will be recorded as the value of the forward contract on the commitment date if the forward contract is recorded using the net method?

Accepted Answer

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

Question 3

Which of the following would NOT be considered a foreign exchange hedge?

Accepted Answer

A)  The placement of large amounts of Canadian funds with a bank in Zurich, Switzerland. 
B)  A foreign currency futures contract. 
C)  A foreign currency option contract. 
D) A forward exchange contract.

Question 4

What is the amount of interest paid (in Canadian Dollars) during 2017?

Accepted Answer

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

Question 5

What amount (in Canadian dollars) should ABC expect to receive from its bank on May 1, 2016?

Accepted Answer

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

Question 6

What is the amount of CMI's foreign exchange gain or loss on February 28th?

Accepted Answer

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

Question 7

Which of the following statements is correct?

Accepted Answer

A)  In Canada, the cost of a unit of foreign currency in Canadian dollars is a direct quotation, while the cost in that foreign currency of purchasing one Canadian dollar is referred to as an indirect quotation. 
B)  In Canada, the cost of a unit of foreign currency in Canadian dollars is an indirect quotation, while the cost in that foreign currency of purchasing one Canadian dollar is referred to as a direct quotation. 
C)  In Canada, the cost of a unit of foreign currency in Canadian dollars is a direct quotation, and the cost in that foreign currency of purchasing one Canadian dollar is also referred to as a direct quotation. 
D) In Canada, the cost of a unit of foreign currency in Canadian dollars is an indirect quotation, while the cost in that foreign currency of purchasing one Canadian dollar is also referred to as an indirect quotation.

Question 8

Prepare the 2016 journal entries to record the above transactions. In addition, prepare any adjusting journal entries that you deem necessary.

Accepted Answer

The answer of Prepare the 2016 journal entries to record...

Question 9

What is the amount of cash (in Canadian funds) received by CMI on the settlement date?

Accepted Answer

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

Question 10

What is the amount of RXN's foreign exchange gain or loss prior to its hedge?

Accepted Answer

A)  A CDN$6,000 loss. 
B)  A CDN$6,000 gain. 
C)  A CDN$4,500 gain. 
D) Nil.

Question 11

What is the total amount of CMI's foreign exchange gain or loss on this transaction?

Accepted Answer

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

Question 12

What would be the amount of the foreign exchange gain or loss recorded at the balance sheet date?

Accepted Answer

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

Question 13

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2016 the company shipped some lumber to a client in Japan. The selling price was established at 500,000 Yen with payment to be received on March 1, 2017.
On December 3, 2016 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1 Yen = CDN$1.185. The forward contract was designated as a fair value hedge of the receivable from the Japanese customer.
Canada Corp received the payment from its Japanese client on March 1, 2017. Canada Corp's year end is on December 31.
Selected spot rates were as follows: $$\begin{array} { | l | l | } 
\hline \text { December 1, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \
\hline \text { December 3, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \
\hline \text { December 31, 2016:} & 1 \text { Yen } = \text { CDN } \$ 1.1626 \
\hline \text { March 1, 2017: } & 1 \text { Yen } = \text { CDN } \$ 1.1750 \
\hline
\end{array}$$ The two-month forward rate on December 31, 2016 was 1Yen = CDN$1.1800.
-Prepare any and all journal entries arising from this transaction.

Accepted Answer

The answer of Canada Corp. sells raw lumber to a...

Question 14

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.

Question 15

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

Accepted Answer

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

Question 16

What is the amount of interest expense (in Canadian Dollars) recorded for 2017?

Accepted Answer

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

Question 17

What is the required adjustment to the carrying value of the forward contract at the company's year-end?

Accepted Answer

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

Question 18

Some gains and losses arising on a revaluation of property plant and equipment are to be included in other comprehensive income. When the asset is measured in a foreign currency, how would exchange differences be treated?

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.

Question 19

What amount (in Canadian dollars) did North pay to its American supplier for the purchase of the inventory?

Accepted Answer

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

Question 20

Canada Corp. sells raw lumber to a number of countries around the world. On December 1, 2016 the company shipped some lumber to a client in Japan. The selling price was established at 500,000 Yen with payment to be received on March 1, 2017.
On December 3, 2016 the company entered into a hedge with a Canadian Bank at the 90 day forward rate of 1 Yen = CDN$1.185. The forward contract was designated as a fair value hedge of the receivable from the Japanese customer.
Canada Corp received the payment from its Japanese client on March 1, 2017. Canada Corp's year end is on December 31.
Selected spot rates were as follows: $$\begin{array} { | l | l | } 
\hline \text { December 1, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \
\hline \text { December 3, 2016: } & 1 \text { Yen } = \text { CDN\$1.156 } \
\hline \text { December 31, 2016:} & 1 \text { Yen } = \text { CDN } \$ 1.1626 \
\hline \text { March 1, 2017: } & 1 \text { Yen } = \text { CDN } \$ 1.1750 \
\hline
\end{array}$$ The two-month forward rate on December 31, 2016 was 1Yen = CDN$1.1800.
-Prepare the journal entries to record the receipt of the 500,000 Yen on March 1, 2017, assuming that Canada Corp did not enter into a hedge transaction in December 2016.

Accepted Answer