Deck 8: Foreign Currency Transactions and Hedging

Question 1

How are accounts payable, denominated in another currency, reported on a U.S. company's balance sheet?

A) At the exchange rate on the balance sheet date
B) At the exchange rate when the payable was originally recorded
C) At the exchange rate when the payables are due
D) The payables are not reported

Answer 1

At the exchange rate on the balance sheet date

Question 2

How are accounts receivable, denominated in another currency, reported on a U.S. company's balance sheet?

A) At the rate on the balance sheet date
B) At the rate when the receivable was originally recorded
C) At the rate when the customer pays the company
D) the receivables are not reported

Answer 2

At the rate on the balance sheet date

Question 3

A U.S. company buys inventory from a supplier in Canada and pays for the inventory in Canadian dollars (C$). The inventory is converted to U.S. dollars on the U.S. company's balance sheet using what $/C$ exchange rate?

A) The rate when the inventory was paid for
B) The rate at the balance sheet date
C) The rate when the inventory was delivered
D) The rate when the inventory is sold

Answer 3

The rate when the inventory was delivered

Question 4

A U.S. company sells merchandise to customers in Hong Kong. The merchandise is priced in Hong Kong dollars, and customers generally take 15 days to pay for the merchandise. The U.S. company's sales revenue for these sales, reported on its income statement, is expressed in U.S. dollars converted at:

A) The rate when the company received payment from the customer
B) The rate when the sales were made
C) The rate at the end of the accounting year
D) The rate when the company received the purchase order from the customer

Question 5

On November 2, 2019, when the spot rate is $0.12/HK$, a company sells merchandise priced at HK$1,000,000 to a customer in Hong Kong. The spot rate is $0.125 on December 31, the company's year-end. Payment of HK$1,000,000 is received from the customer on February 1, 2020, when the spot rate is $0.122. What exchange gains and losses are reported in 2019 and 2020 income?
$\quad$$\quad$$\begin{array}{llcc}& \underline{ 2019 } & &&&&&&& \underline {2020 } \\\end{array}$

A) $\begin{array}{lrr}\$ 5,000 \text { exchange loss } & \$ 3,000 \text { exchange gain }\end{array}$
B) $\begin{array}{lrr}\$ 5,000 \text { exchange gain } &\$ 3,000 \text { exchange loss }\end{array}$
C) $\begin{array}{lrr}\text { No effect }&&&&&& \$ 2,000 \text { exchange gain }\end{array}$
D) $\begin{array}{lrr}\text { No effect }&&&&&& \$ 2,000 \text { exchange loss }\end{array}$

Question 6

On November 2, 2019, when the spot rate is $0.12/HK$, a company takes delivery of merchandise priced at HK$1,000,000 from a supplier in Hong Kong. The spot rate is $0.125 on December 31, the company's year-end. Payment of HK$1,000,000 is made to the supplier on February 1, 2020, when the spot rate is $0.122. What is the effect of exchange gains and losses on 2019 and 2020 income?
$\quad$$\quad$$\begin{array}{llcc}& \underline{ 2019 } & &&&&&&& \underline {2020 } \\\end{array}$

A) $\begin{array}{lrr}\$ 5,000 \text { exchange loss } & \$ 3,000 \text { exchange gain }\end{array}$
B) $\begin{array}{lrr}\$ 5,000 \text { exchange gain } &\$ 3,000 \text { exchange loss }\end{array}$
C) $\begin{array}{lrr}\text { No effect }&&&&&& \$ 2,000 \text { exchange loss}\end{array}$
D) $\begin{array}{lrr}\text { No effect }&&&&&& \$ 2,000 \text { exchange gain}\end{array}$

Question 7

Use the following data to answer bellow Questions
On November 30, 2020, a U.S. company purchased merchandise on credit from a Swiss supplier at an invoice price of CHF1,000, when the exchange rate was $1.05/CHF. On December 31, 2020, the company's year-end, the exchange rate was $1.045/CHF. On February 1, 2021, the company purchased the CHF1,000 for $1.048/CHF and paid the invoice. On March 15, 2021, when the exchange rate was $1.044, the company sold the merchandise to a U.S. customer for $2,000.

-At what amount should the merchandise be reported on the U.S. company's December 31, 2020 balance sheet?

A) $1,045
B) $1,048
C) $1,044
D) $1,050

Question 8

Use the following data to answer bellow Questions
On November 30, 2020, a U.S. company purchased merchandise on credit from a Swiss supplier at an invoice price of CHF1,000, when the exchange rate was $1.05/CHF. On December 31, 2020, the company's year-end, the exchange rate was $1.045/CHF. On February 1, 2021, the company purchased the CHF1,000 for $1.048/CHF and paid the invoice. On March 15, 2021, when the exchange rate was $1.044, the company sold the merchandise to a U.S. customer for $2,000.

-What is the U.S. company's gross margin (sales revenue minus cost of sales) on the March 15, 2021 sale?

A) $950
B) $955
C) $956
D) $952

Question 9

Use the following data to answer bellow Questions
On November 30, 2020, a U.S. company purchased merchandise on credit from a Swiss supplier at an invoice price of CHF1,000, when the exchange rate was $1.05/CHF. On December 31, 2020, the company's year-end, the exchange rate was $1.045/CHF. On February 1, 2021, the company purchased the CHF1,000 for $1.048/CHF and paid the invoice. On March 15, 2021, when the exchange rate was $1.044, the company sold the merchandise to a U.S. customer for $2,000.

-The U.S. company's exchange gain or loss for 2020 is:

A) $5 loss
B) $2 gain
C) $5 gain
D) $2 loss

Question 10

Use the following data to answer bellow Questions
On October 25, 2020, a U.S. company sold merchandise on credit to a customer in Spain at an invoice price of €1,000, when the exchange rate was $1.25/€. On December 31, 2020, the U.S. company's year-end, the exchange rate was $1.257/€. On February 1, 2021, when the exchange rate was €1.23, the U.S. company received €1,000 in payment for the merchandise.

-The U.S. company's exchange gain or loss for 2020 is

A) $7 loss
B) $20 gain
C) $7 gain
D) $20 loss

Question 11

Use the following data to answer bellow Questions
On October 25, 2020, a U.S. company sold merchandise on credit to a customer in Spain at an invoice price of €1,000, when the exchange rate was $1.25/€. On December 31, 2020, the U.S. company's year-end, the exchange rate was $1.257/€. On February 1, 2021, when the exchange rate was €1.23, the U.S. company received €1,000 in payment for the merchandise.

-In 2020, the U.S. company reports sales revenue of

A) $1,257
B) $1,000
C) $1,230
D) $1,250

Question 12

Use the following data to answer bellow Questions
On October 25, 2020, a U.S. company sold merchandise on credit to a customer in Spain at an invoice price of €1,000, when the exchange rate was $1.25/€. On December 31, 2020, the U.S. company's year-end, the exchange rate was $1.257/€. On February 1, 2021, when the exchange rate was €1.23, the U.S. company received €1,000 in payment for the merchandise.

-The U.S. company's exchange gain or loss for 2021 is

A) $20 loss
B) $27 loss
C) $20 gain
D) $27 gain

Question 13

Use the following data to answer bellow Questions
On May 20, when the exchange rate was $1.40/£, a U.S. company purchased merchandise from a U.K. supplier for £10,000 and paid for the merchandise on June 5, when the exchange rate was $1.38/£. On August 15, when the exchange rate was $1.23/€, the U.S. company sold the merchandise to a customer in Belgium at an invoice price of €16,000. On September 6, when the exchange rate was $1.21/€, the U.S. company received payment of €16,000 from the Belgian customer. The U.S. company's accounting year ends December 31.

-The U.S. company reports sales revenue in the amount of:

A) $22,400
B) $19,360
C) $16,000
D) $19,680

Question 14

Use the following data to answer bellow Questions
On May 20, when the exchange rate was $1.40/£, a U.S. company purchased merchandise from a U.K. supplier for £10,000 and paid for the merchandise on June 5, when the exchange rate was $1.38/£. On August 15, when the exchange rate was $1.23/€, the U.S. company sold the merchandise to a customer in Belgium at an invoice price of €16,000. On September 6, when the exchange rate was $1.21/€, the U.S. company received payment of €16,000 from the Belgian customer. The U.S. company's accounting year ends December 31.

-What amount does the U.S. company report as cost of goods sold?

A) $13,800
B) $10,000
C) $14,000
D) $12,300

Question 15

Use the following data to answer bellow Questions
On May 20, when the exchange rate was $1.40/£, a U.S. company purchased merchandise from a U.K. supplier for £10,000 and paid for the merchandise on June 5, when the exchange rate was $1.38/£. On August 15, when the exchange rate was $1.23/€, the U.S. company sold the merchandise to a customer in Belgium at an invoice price of €16,000. On September 6, when the exchange rate was $1.21/€, the U.S. company received payment of €16,000 from the Belgian customer. The U.S. company's accounting year ends December 31.

-What is the U.S. company's net exchange gain or loss for the year?

A) $120 loss
B) $120 gain
C) $520 loss
D) $520 gain

Question 16

A U.S. company borrows €100,000 by issuing bonds to German investors when the spot rate is $1.25/€. The interest rate is 3 percent per annum.
Which of the following is false concerning the U.S. company's accounting for this loan?

A) If the euro weakens against the U.S. dollar there will be an exchange loss on the bonds payable.
B) If the spot rate falls to $1.20/€ one year later, when the interest payment is accrued, the interest expense will be recorded at $3,600.
C) The company can hedge these bonds by entering a forward purchase contract for euros.
D) If the spot rate falls to $1.23 one year later, the company will report the bonds payable at $123,000.

Question 17

Use the following information to answer bellow Questions
A U.S. company purchases a 90-day certificate of deposit from a Singapore bank on May 15, when the spot rate is $0.72/S$. The certificate has a face value of S$100,000 and pays interest at an annual rate of 2 percent. On August 13, the certificate of deposit matures, and the company receives principal and interest of S$100,500 and records interest revenue on the investment. The spot rate on August 13 is $0.75/S$. The average spot rate for the period May 15 - August 13 is $0.73/S$. The company's accounting year ends December 31.

-The total exchange gain or loss on this investment is:

A) $3,000 gain
B) $3,000 loss
C) $2,000 loss
D) $2,000 gain

Question 18

Use the following information to answer bellow Questions
A U.S. company purchases a 90-day certificate of deposit from a Singapore bank on May 15, when the spot rate is $0.72/S$. The certificate has a face value of S$100,000 and pays interest at an annual rate of 2 percent. On August 13, the certificate of deposit matures, and the company receives principal and interest of S$100,500 and records interest revenue on the investment. The spot rate on August 13 is $0.75/S$. The average spot rate for the period May 15 - August 13 is $0.73/S$. The company's accounting year ends December 31.

-Interest income on the investment is reported at:

A) $500
B) $360
C) $375
D) $365

Question 19

Interest expense on a loan denominated in another currency is converted at:

A) The average spot rate for the period the interest covers
B) The spot rate when the loan was made
C) The spot rate when the interest is accrued
D) The forward rate for delivery when the interest must be paid

Question 20

A U.S. company has a forward purchase contract for delivery of euros at the end of May at a price of $1.24/€. The U.S. dollar strengthens against the euro during this period. The company will:

A) Gain on the forward purchase contract
B) Lose on the forward purchase contract
C) Not exercise the forward purchase contract
D) Continue to hold the forward contract after the end of May

Question 21

A U.S. company has a forward sale contract for delivery of euros at the end of May at a price of $1.24/€. The U.S. dollar strengthens against the euro during this period. The company will:

A) Gain on the forward sale contract
B) Lose on the forward sale contract
C) Not exercise the forward sale contract
D) Continue to hold the forward contract after the end of May

Question 22

A U.S. company holds put options in euros with a strike price of $1.25/€. The spot price of euros declines to $1.23/€. The company will:

A) Gain on the put options
B) Not exercise the options
C) Lose on the put options
D) Continue to hold the options after they expire

Question 23

A company holds put options for €1,000 with a strike price of $1.25/€, purchased for $20. The exchange rate increases to $1.28/€. The company

A) Loses $50 on the put options
B) Loses $20 on the options
C) Gains $10 on the put options
D) Gains $30 on the put options

Question 24

A company holds put options for €1,000 with a strike price of $1.25/€, purchased for $20. The exchange rate declines to $1.22/€. The company

A) Loses $50 on the put options
B) Loses $20 on the options
C) Gains $10 on the put options
D) Gains $30 on the put options

Question 25

You believe the U.S. dollar will significantly weaken against the euro in the future. Which position will allow you to benefit from your information?

A) Put option in euros
B) Futures contract to buy euros
C) Forward sale of euros
D) Loan payable denominated in euros

Question 26

You have inside information that the U.S. dollar will significantly strengthen against the yuan in the future. Which position will allow you to benefit from your information?

A) Futures contract to buy yuan
B) Call option in yuan
C) You don't take a position because expected losses exceed expected gains.
D) Futures contract to sell yuan

Question 27

On November 1, 2020, a U.S. company invests in a forward sale contract for delivery of 1,000,000 Singapore dollars (S$) at $0.75/S$ on February 1, 2021. The spot rate on November 1 is $0.77/S$. At December 31, the end of the accounting year, the forward contract is still outstanding. The year-end spot rate is $0.73. The year-end forward rate for February 1 delivery of Singapore dollars is $0.735.
How is the forward contract reported on the U.S. company's year-end balance sheet?

A) $40,000 asset
B) $15,000 liability
C) $35,000 liability
D) $15,000 asset

Question 28

On November 1, 2020, a U.S. company invests in a forward purchase contract for delivery of 1,000,000 Singapore dollars (S$) at $0.75/S$ on February 1, 2021. The spot rate on November 1 is $0.77/S$. At December 31, the end of the accounting year, the forward contract is still outstanding. The year-end spot rate is $0.73. The year-end forward rate for February 1 delivery of Singapore dollars is $0.735.
How is the forward contract reported on the U.S. company's year-end balance sheet?

A) $40,000 asset
B) $15,000 liability
C) $35,000 liability
D) $15,000 asset

Question 29

A U.S. company has euro-denominated receivables that it hedges with a forward sale of euros. The U.S. dollar strengthens against the euro.
Which statement is true?

A) The gain on the receivables and the loss on the forward are reported in income.
B) The gain on the receivables and the loss on the forward are reported in other comprehensive income.
C) The loss on the receivables and the gain on the forward are reported in income.
D) The loss on the receivables and the gain on the forward are reported in other comprehensive income.

Question 30

A U.S. company has payables denominated in euros that it hedges with foreign currency forward purchase contracts. The U.S. dollar strengthens against the euro.
Which statement is true?

A) The gain on the payables and the loss on the forward are reported in income.
B) The gain on the payables and the loss on the forward are reported in other comprehensive income.
C) The loss on the payables and the gain on the forward are reported in income.
D) The loss on the payables and the gain on the forward are reported in other comprehensive income.

Question 31

A U.S. company has customers in Singapore, who remit payments to the U.S. company in Singapore dollars. Which investment hedges the exchange risk associated with these customers?

A) Forward purchase in Singapore dollars
B) Forward sale in Singapore dollars
C) Long futures in Singapore dollars
D) Call option in Singapore dollars

Question 32

A U.S. company has suppliers in Singapore, who require payment in Singapore dollars. Which investment hedges the exchange risk associated with these suppliers?

A) Forward purchase in Singapore dollars
B) Forward sale in Singapore dollars
C) Short futures in Singapore dollars
D) Put option in Singapore dollars

Question 33

Use the following information on the U.S. dollar value of the euro to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { March 16, 2020 Delivery }\end{array} \\\hline \text { November 16, 2019 } & \$ 1.250 & \$ 1.248 \\\hline \text { December 31, 2019 } & 1.260 & 1.255 \\\hline \text { March 16, 2020 } & 1.265 & 1.265 \\\hline\end{array}$$ On November 16, 2019, a U.S. company makes a sale to a customer in Germany. Under the sale terms, the customer will pay the company €100,000 on March 16. On November 16, the company also enters a forward contract to sell €100,000 on March 16, 2020. On March 16, the company receives €100,000 from the customer and sells it using the forward contract. The company's accounting year ends December 31.

-How will the company report the forward contract on its December 31, 2019 balance sheet?

A) $700 asset
B) $700 liability
C) $500 asset
D) $500 liability

Question 34

Use the following information on the U.S. dollar value of the euro to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { March 16, 2020 Delivery }\end{array} \\\hline \text { November 16, 2019 } & \$ 1.250 & \$ 1.248 \\\hline \text { December 31, 2019 } & 1.260 & 1.255 \\\hline \text { March 16, 2020 } & 1.265 & 1.265 \\\hline\end{array}$$ On November 16, 2019, a U.S. company makes a sale to a customer in Germany. Under the sale terms, the customer will pay the company €100,000 on March 16. On November 16, the company also enters a forward contract to sell €100,000 on March 16, 2020. On March 16, the company receives €100,000 from the customer and sells it using the forward contract. The company's accounting year ends December 31.

-What is the net effect on 2019 income of exchange rate changes due to the sale and the forward contract?

A) no effect
B) $300 net loss
C) $300 net gain
D) $1,700 net gain

Question 35

Use the following information on the U.S. dollar value of the euro to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { March 16, 2020 Delivery }\end{array} \\\hline \text { November 16, 2019 } & \$ 1.250 & \$ 1.248 \\\hline \text { December 31, 2019 } & 1.260 & 1.255 \\\hline \text { March 16, 2020 } & 1.265 & 1.265 \\\hline\end{array}$$ On November 16, 2019, a U.S. company makes a sale to a customer in Germany. Under the sale terms, the customer will pay the company €100,000 on March 16. On November 16, the company also enters a forward contract to sell €100,000 on March 16, 2020. On March 16, the company receives €100,000 from the customer and sells it using the forward contract. The company's accounting year ends December 31.

-At what amount will the company report sales revenue on its 2019 income statement?

A) $124,800
B) $126,000
C) $125,500
D) $125,000

Question 36

Use the following information on the U.S. dollar value of the euro to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { March 16, 2020 Delivery }\end{array} \\\hline \text { November 16, 2019 } & \$ 1.250 & \$ 1.248 \\\hline \text { December 31, 2019 } & 1.260 & 1.255 \\\hline \text { March 16, 2020 } & 1.265 & 1.265 \\\hline\end{array}$$ On November 16, 2019, a U.S. company makes a sale to a customer in Germany. Under the sale terms, the customer will pay the company €100,000 on March 16. On November 16, the company also enters a forward contract to sell €100,000 on March 16, 2020. On March 16, the company receives €100,000 from the customer and sells it using the forward contract. The company's accounting year ends December 31.

-What is the net effect on 2020 income of exchange rate changes due to the sale and the forward contract?

A) no effect
B) $500 net loss
C) $500 net gain
D) $1,500 net gain

Question 37

Use the following information on the U.S. dollar value of the euro to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { March 16, 2020 Delivery }\end{array} \\\hline \text { November 16, 2019 } & \$ 1.250 & \$ 1.248 \\\hline \text { December 31, 2019 } & 1.260 & 1.255 \\\hline \text { March 16, 2020 } & 1.265 & 1.265 \\\hline\end{array}$$ On November 16, 2019, a U.S. company makes a sale to a customer in Germany. Under the sale terms, the customer will pay the company €100,000 on March 16. On November 16, the company also enters a forward contract to sell €100,000 on March 16, 2020. On March 16, the company receives €100,000 from the customer and sells it using the forward contract. The company's accounting year ends December 31.

-How much in U.S. dollars does the U.S. company receive on March 16, 2020?

A) $100,000
B) $125,000
C) $126,500
D) $124,800

Question 38

Use the following information on the U.S. dollar value of the pound sterling
to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { August 16, 2020 Delivery }\end{array} \\\hline \text { May 16, 2020 } & \$ 1.380 & \$ 1.375 \\\hline \text { June 30, 2020 } & 1.390 & 1.388 \\\hline \text { August 16, 2020 } & 1.400 & 1.400 \\\hline\end{array}$$ On May 16, 2020, a U.S. company takes delivery of £100,000 in merchandise from a U.K. supplier. The company will pay the supplier £100,000 on August 16. On May 16, the company also enters a forward contract to buy £100,000 on August 16, 2020. On August 16, the company purchases £100,000 using the forward contract, and pays the supplier. The company's accounting year ends June 30, and it sells the merchandise in September 2020.

-How will the company report the forward contract on its June 30, 2020 balance sheet?

A) $1,000 asset
B) $1,000 liability
C) $1,300 asset
D) $1,300 liability

Question 39

Use the following information on the U.S. dollar value of the pound sterling
to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { August 16, 2020 Delivery }\end{array} \\\hline \text { May 16, 2020 } & \$ 1.380 & \$ 1.375 \\\hline \text { June 30, 2020 } & 1.390 & 1.388 \\\hline \text { August 16, 2020 } & 1.400 & 1.400 \\\hline\end{array}$$ On May 16, 2020, a U.S. company takes delivery of £100,000 in merchandise from a U.K. supplier. The company will pay the supplier £100,000 on August 16. On May 16, the company also enters a forward contract to buy £100,000 on August 16, 2020. On August 16, the company purchases £100,000 using the forward contract, and pays the supplier. The company's accounting year ends June 30, and it sells the merchandise in September 2020.

-What is the net effect on fiscal 2020 income of exchange rate changes due to the purchase and the forward contract?

A) no effect
B) $2,300 net loss
C) $300 net loss
D) $300 net gain

Question 40

Use the following information on the U.S. dollar value of the pound sterling
to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { August 16, 2020 Delivery }\end{array} \\\hline \text { May 16, 2020 } & \$ 1.380 & \$ 1.375 \\\hline \text { June 30, 2020 } & 1.390 & 1.388 \\\hline \text { August 16, 2020 } & 1.400 & 1.400 \\\hline\end{array}$$ On May 16, 2020, a U.S. company takes delivery of £100,000 in merchandise from a U.K. supplier. The company will pay the supplier £100,000 on August 16. On May 16, the company also enters a forward contract to buy £100,000 on August 16, 2020. On August 16, the company purchases £100,000 using the forward contract, and pays the supplier. The company's accounting year ends June 30, and it sells the merchandise in September 2020.

-At what amount will the company report cost of goods sold for the sale of the merchandise in fiscal 2021?

A) $138,000
B) $140,000
C) $137,500
D) $139,000

Question 41

Use the following information on the U.S. dollar value of the pound sterling
to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { August 16, 2020 Delivery }\end{array} \\\hline \text { May 16, 2020 } & \$ 1.380 & \$ 1.375 \\\hline \text { June 30, 2020 } & 1.390 & 1.388 \\\hline \text { August 16, 2020 } & 1.400 & 1.400 \\\hline\end{array}$$ On May 16, 2020, a U.S. company takes delivery of £100,000 in merchandise from a U.K. supplier. The company will pay the supplier £100,000 on August 16. On May 16, the company also enters a forward contract to buy £100,000 on August 16, 2020. On August 16, the company purchases £100,000 using the forward contract, and pays the supplier. The company's accounting year ends June 30, and it sells the merchandise in September 2020.

-What is the net effect on fiscal 2021 income of exchange rate changes due to the purchase and the forward contract?

A) no effect
B) $200 net gain
C) $200 net loss
D) $2,200 net gain

Question 42

Use the following information on the U.S. dollar value of the pound sterling
to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { August 16, 2020 Delivery }\end{array} \\\hline \text { May 16, 2020 } & \$ 1.380 & \$ 1.375 \\\hline \text { June 30, 2020 } & 1.390 & 1.388 \\\hline \text { August 16, 2020 } & 1.400 & 1.400 \\\hline\end{array}$$ On May 16, 2020, a U.S. company takes delivery of £100,000 in merchandise from a U.K. supplier. The company will pay the supplier £100,000 on August 16. On May 16, the company also enters a forward contract to buy £100,000 on August 16, 2020. On August 16, the company purchases £100,000 using the forward contract, and pays the supplier. The company's accounting year ends June 30, and it sells the merchandise in September 2020.

-How much in U.S. dollars does the U.S. company pay for the £100,000 on August 16, 2020?

A) $100,000
B) $138,000
C) $137,500
D) $140,000

Question 43

A U.S. company uses forward contracts to hedge its euro-denominated purchases of merchandise imported from an Irish supplier. Assume the spot rate is $1.26/€ and the appropriate forward rate is $1.25 when the merchandise is delivered, and the company enters the forward contract. The spot rate is $1.23 when the forward contract comes due and the company pays the supplier.
Which statement is true?

A) The loss on the forward and the gain on the payable to the supplier appear on the company's income statement, with a net negative impact on income.
B) The gain on the forward and the loss on the payable to the supplier are matched in the company's OCI, with a net negative impact on OCI.
C) The loss on the forward and the gain on the payable to the supplier are matched in the company's OCI, with a net positive impact on income.
D) The loss on the forward and the gain on the payable to the supplier appear on the company's income statement, with a net positive impact on income.

Question 44

To achieve matching of hedge gains and losses against losses and gains on the hedged item, accounting for hedges of receivables denominated in foreign currency:

A) Uses hedge accounting for the hedge, but not the receivable
B) Uses hedge accounting for the receivable, but not the hedge
C) Uses hedge accounting for both the hedge and the receivable
D) Does not use hedge accounting for either the hedge or the receivable

Question 45

Use the following information on the U.S. dollar value of the New Zealand dollar to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { June 30, 2020 Delivery }\end{array} \\\hline \text { March 28, 2020 } & \$ 0.725 & \$ 0.730 \\\hline \text { May 2, 2020 } & 0.732 & 0.735 \\\hline \text { June 28, 2020 } & 0.750 & 0.750 \\\hline\end{array}$$ On March 28, 2020, a U.S. company issues a purchase order to buy merchandise for NZ$100,000. The company will pay the supplier on June 28, 2020, so on March 28, the company enters a forward contract to purchase NZ$100,000 on June 28. The company takes delivery of the merchandise on May 2, 2020. On June 28, 2020, the company acquires NZ$100,000 using the forward contract and pays the supplier. The company sells the merchandise later in the year. The company's accounting year ends December 31.

-When the merchandise is sold by the U.S. company, cost of goods sold is:

A) $73,200
B) $72,700
C) $73,000
D) $75,000

Question 46

Use the following information on the U.S. dollar value of the New Zealand dollar to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { June 30, 2020 Delivery }\end{array} \\\hline \text { March 28, 2020 } & \$ 0.725 & \$ 0.730 \\\hline \text { May 2, 2020 } & 0.732 & 0.735 \\\hline \text { June 28, 2020 } & 0.750 & 0.750 \\\hline\end{array}$$ On March 28, 2020, a U.S. company issues a purchase order to buy merchandise for NZ$100,000. The company will pay the supplier on June 28, 2020, so on March 28, the company enters a forward contract to purchase NZ$100,000 on June 28. The company takes delivery of the merchandise on May 2, 2020. On June 28, 2020, the company acquires NZ$100,000 using the forward contract and pays the supplier. The company sells the merchandise later in the year. The company's accounting year ends December 31.

-When the company takes delivery of the merchandise on May 2, 2020, accounts payable is credited in the amount of:

A) $72,500
B) $73,000
C) $73,200
D) $75,000

Question 47

Use the following information on the U.S. dollar value of the New Zealand dollar to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { June 30, 2020 Delivery }\end{array} \\\hline \text { March 28, 2020 } & \$ 0.725 & \$ 0.730 \\\hline \text { May 2, 2020 } & 0.732 & 0.735 \\\hline \text { June 28, 2020 } & 0.750 & 0.750 \\\hline\end{array}$$ On March 28, 2020, a U.S. company issues a purchase order to buy merchandise for NZ$100,000. The company will pay the supplier on June 28, 2020, so on March 28, the company enters a forward contract to purchase NZ$100,000 on June 28. The company takes delivery of the merchandise on May 2, 2020. On June 28, 2020, the company acquires NZ$100,000 using the forward contract and pays the supplier. The company sells the merchandise later in the year. The company's accounting year ends December 31.

-What is the net effect on 2020 income of exchange rate changes due to the merchandise purchase and hedge?

A) no effect
B) $500 loss
C) $2,500 loss
D) $300 loss

Question 48

Use the following information on the U.S. dollar value of the euro to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text {April 30, 2021 Delivery }\end{array} \\\hline \text { October 30,2020 } & \$1.230 & \$ 1.240 \\\hline \text { November 1, 2020 } & 1.248 &1.254 \\\hline \text { December 31,2020} & 1.260 & 1.265 \\\hline \text { April 30, 2021}&1.270&1.720\\\hline\end{array}$$ On October 30, 2020, a U.S. company receives a purchase order from a customer in Spain. Under the sale terms, the customer will pay the company €100,000 on April 30. On October 30, the U.S. company also enters a forward contract to sell €100,000 on April 30, 2021. The company delivers the merchandise to the customer on November 1. On April 30, the company receives €100,000 from the customer and sells it using the forward contract. The company's accounting year ends December 31.

-On November 1, 2020, the company reports sales revenue in the amount of:

A) $124,300
B) $124,500
C) $124,800
D) $125,300

Question 49

Use the following information on the U.S. dollar value of the euro to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text {April 30, 2021 Delivery }\end{array} \\\hline \text { October 30,2020 } & \$1.230 & \$ 1.240 \\\hline \text { November 1, 2020 } & 1.248 &1.254 \\\hline \text { December 31,2020} & 1.260 & 1.265 \\\hline \text { April 30, 2021}&1.270&1.720\\\hline\end{array}$$ On October 30, 2020, a U.S. company receives a purchase order from a customer in Spain. Under the sale terms, the customer will pay the company €100,000 on April 30. On October 30, the U.S. company also enters a forward contract to sell €100,000 on April 30, 2021. The company delivers the merchandise to the customer on November 1. On April 30, the company receives €100,000 from the customer and sells it using the forward contract. The company's accounting year ends December 31.

-What net gain or loss is recognized in 2020, in addition to sales revenue?

A) $500 net loss
B) $500 net gain
C) $800 net loss
D) $800 net gain

Question 50

A U.S. company issues a purchase order for merchandise to a Canadian supplier. The agreed upon total price is C$100,000, and the current spot rate is $0.82/C$. The company enters a forward contract when the purchase order is issued, at a rate of $0.815/C$, for delivery when the merchandise is received. If the spot rate falls to $0.80/C$ when the merchandise is received and paid for, at what value will the merchandise be reported on the company's books?

A) $80,000
B) $78,500
C) $82,000
D) $81,500

Question 51

On July 10, a U.S. company with a December 31 year-end enters a forward contract that locks in the purchase price of won, for delivery on August 15. The forward contract hedges a firm commitment to buy merchandise from a supplier in Korea, with payment denominated in won. The purchase is made on August 1, and payment is made on August 15. The U.S. company sells the merchandise in September. Where is the value of the firm commitment to purchase reported in the year-end financial statements?

A) Asset or liability on the balance sheet
B) Increase or decrease in other comprehensive income
C) Adjustment to sales revenue
D) Adjustment to cost of goods sold

Question 52

To achieve matching of hedge gains and losses against losses and gains on the hedged item, accounting for qualified hedges of firm purchase commitments denominated in foreign currency:

A) Uses hedge accounting for the firm commitment, but not the hedge
B) Uses hedge accounting for the hedge, but not the firm commitment
C) Uses hedge accounting for both the hedge and the firm commitment
D) Does not use hedge accounting for either the hedge or the firm commitment

Question 53

Use the following information to answer bellow Questions
A U.S. company anticipates that it will sell merchandise for €100,000 at the end of August and receive payment for it at the end of October. On May 1, when the spot rate is $1.20 and the forward rate for delivery on October 31 is $1.21, the company enters a forward contract to sell €100,000 on October 31. The forward contract qualifies as a cash flow hedge of the forecasted sale. The company sells the merchandise on August 30, when the spot rate is $1.232 and the forward rate for October 31 delivery is $1.23 and receives payment of €100,000 and closes the forward contract on October 31, when the spot rate is $1.24. The company has a December 31 year-end.

-Sales revenue is reported on the company's income statement in the amount of:

A) $123,200
B) $121,200
C) $123,000
D) $125,200

Question 54

Use the following information to answer bellow Questions
A U.S. company anticipates that it will sell merchandise for €100,000 at the end of August and receive payment for it at the end of October. On May 1, when the spot rate is $1.20 and the forward rate for delivery on October 31 is $1.21, the company enters a forward contract to sell €100,000 on October 31. The forward contract qualifies as a cash flow hedge of the forecasted sale. The company sells the merchandise on August 30, when the spot rate is $1.232 and the forward rate for October 31 delivery is $1.23 and receives payment of €100,000 and closes the forward contract on October 31, when the spot rate is $1.24. The company has a December 31 year-end.

-What is the net exchange gain/loss for the year related to this transaction?

A) $-0-
B) $200 net gain
C) $200 net loss
D) $1,800 net loss

Question 55

Use the following information to answer bellow Questions
A U.S. company anticipates that it will purchase merchandise for €100,000 at the end of August and pay for it at the time the merchandise is delivered. On May 1, when the spot rate is $1.20 and the forward rate for delivery on August 30 is $1.21, the company enters a forward contract to buy €100,000 on August 30. The forward contract qualifies as a cash flow hedge of the forecasted purchase. The company purchases the merchandise on August 30, when the spot rate is $1.232, and closes the forward contract and pays the supplier €100,000. The company sells the merchandise in October. The company has a December 31 year-end.

-On August 30, the company records the merchandise at what amount?

A) $123,200
B) $121,000
C) $125,400
D) $120,000

Question 56

Use the following information to answer bellow Questions
A U.S. company anticipates that it will purchase merchandise for €100,000 at the end of August and pay for it at the time the merchandise is delivered. On May 1, when the spot rate is $1.20 and the forward rate for delivery on August 30 is $1.21, the company enters a forward contract to buy €100,000 on August 30. The forward contract qualifies as a cash flow hedge of the forecasted purchase. The company purchases the merchandise on August 30, when the spot rate is $1.232, and closes the forward contract and pays the supplier €100,000. The company sells the merchandise in October. The company has a December 31 year-end.

-As of August 30, the effect of the above events on other comprehensive income is:

A) $0
B) $2,200 net gain
C) $2,200 net loss
D) $3,200 net gain

Question 57

Use the following information to answer bellow Questions
A U.S. company anticipates that it will purchase merchandise for €100,000 at the end of August and pay for it at the time the merchandise is delivered. On May 1, when the spot rate is $1.20 and the forward rate for delivery on August 30 is $1.21, the company enters a forward contract to buy €100,000 on August 30. The forward contract qualifies as a cash flow hedge of the forecasted purchase. The company purchases the merchandise on August 30, when the spot rate is $1.232, and closes the forward contract and pays the supplier €100,000. The company sells the merchandise in October. The company has a December 31 year-end.

-At what amount is cost of goods sold reported when the company sells the merchandise in October?

A) $123,200
B) $121,000
C) $125,400
D) $120,000

Question 58

Use the following information on the U.S. dollar value of the euro to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { Ap ril 30, 2021 Delivery }\end{array} \\\hline \text { October 30, 2020 } & \$ 1.250 & \$ 1.254 \\\hline \text { December 31, 2020 } & 1.258 & 1.256 \\\hline \text { April 30, 2021 } & 1.260 & 1.260 \\\hline\end{array}$$ On October 30, 2020, a U.S. company forecasts that it will purchase merchandise from an Italian supplier at the end of April 2021, in the amount of €100,000, and will pay the supplier on delivery. On October 30, the company enters a forward contract to buy €100,000 on April 30, 2021 and classifies it as a cash flow hedge of the forecasted purchase. On April 30, 2021, the company receives the merchandise, closes the forward contract and pays the supplier. The company's accounting year ends December 31.

-On December 31, 2020, how is the change in value of the forward contract reported?

A) $200 gain, reported in income
B) $200 gain, reported in other comprehensive income
C) $600 loss, reported in income
D) $600 loss, reported in other comprehensive income

Question 59

Use the following information on the U.S. dollar value of the euro to answer bellow Questions
$$\begin{array} { | l | c | c | } \hline & \text { Spot Rate } & \begin{array} { c } \text { Forward Rate for } \\\text { Ap ril 30, 2021 Delivery }\end{array} \\\hline \text { October 30, 2020 } & \$ 1.250 & \$ 1.254 \\\hline \text { December 31, 2020 } & 1.258 & 1.256 \\\hline \text { April 30, 2021 } & 1.260 & 1.260 \\\hline\end{array}$$ On October 30, 2020, a U.S. company forecasts that it will purchase merchandise from an Italian supplier at the end of April 2021, in the amount of €100,000, and will pay the supplier on delivery. On October 30, the company enters a forward contract to buy €100,000 on April 30, 2021 and classifies it as a cash flow hedge of the forecasted purchase. On April 30, 2021, the company receives the merchandise, closes the forward contract and pays the supplier. The company's accounting year ends December 31.

-When the merchandise is sold by the company, what is the cost of goods sold?

A) $126,600
B) $126,000
C) $125,000
D) $125,400

Question 60

A U.S. company reports a forward contract as a cash flow hedge of a forecasted purchase of merchandise, payment to be made in Hong Kong dollars. How is hedge accounting used in this situation?

A) Hedge accounting is used for both the forecasted purchase and the forward contract.
B) Hedge accounting is used for the forecasted purchase. The forward contract is reported normally.
C) Hedge accounting is used for the forward contract. The forecasted purchase is reported normally.
D) Normal accounting is used for both the forecasted purchase and the forward contract.

Question 61

A U.S. company reports a forward contract as a cash flow hedge of a forecasted sale of merchandise to a U.K. customer, payment to be received in pounds. When are gains and losses on the forward contract reported in income?

A) When the customer pays for the merchandise
B) When the anticipated sale becomes a firm commitment
C) As the market value of the hedge investment changes
D) When the U.S. company reports sales revenue on the sale

Question 62

Hedge accounting is not used for hedges of remeasured subsidiaries because:

A) It is specifically prohibited in ASC Topic 815.
B) The hedges do not meet the strict requirements for effective hedges.
C) There is no risk to hedge.
D) Normal accounting matches gains and losses in the same period.

Question 63

A U.S. parent hedges its exposure to exchange rate changes caused by its investment in its subsidiary in Singapore. The subsidiary's functional currency is the U.S. dollar. Where are gains and losses on the hedge reported in the consolidated financial statements?

A) In other comprehensive income.
B) They are not reported.
C) In income.
D) As an adjustment to Investment in subsidiary.

Question 64

A U.S. parent hedges its exposure to exchange rate changes caused by its investment in its subsidiary in Singapore. The subsidiary's functional currency is the Singapore dollar. Where are gains and losses on the hedge reported in the consolidated financial statements?

A) In other comprehensive income.
B) They are not reported.
C) In income.
D) As an adjustment to Investment in subsidiary.

Question 65

McDonald's Corporation hedges its investments in international subsidiaries. All subsidiaries have a positive position in net assets. The hedge gains and losses are reported in other comprehensive income. For the subsidiaries located in euro countries, which statement is true?

A) McDonald's can hedge its investments with euro-denominated borrowings.
B) McDonald's remeasures the accounts of these subsidiaries before consolidating them.
C) If the U.S. dollar weakens against the euro, McDonald's will show translation losses on the subsidiaries.
D) If the U.S. dollar is expected to strengthen against the euro, McDonald's will be motivated to do less hedging of its investments in subsidiaries.

Question 66

In the footnotes to a U.S. company's annual report, it says "Certain foreign-currency-denominated assets are used, in part, to protect the value of the Company's investments in certain foreign subsidiaries.....from changes in foreign currency exchange rates." Which statement is most likely to be true regarding this footnote disclosure?

A) Hedge accounting is necessary to match the gains/losses on the hedge investments against the losses/gains on the subsidiaries.
B) The functional currency of these subsidiaries is the U.S. dollar.
C) These subsidiaries are not consolidated on the company's financial statements.
D) The gain or loss from converting these subsidiaries' accounts to U.S. dollars appears in the company's other comprehensive income.

Question 67

A U.S. company has subsidiaries whose functional currency is the U.S. dollar. Assume the subsidiaries' liabilities remeasured at the current rate exceed their assets remeasured at the current rate. Which investment hedges the U.S. company's currency risk from these subsidiaries?

A) Investments in equity securities in the subsidiaries' currency
B) Investments in debt securities in the subsidiaries' currency
C) Debt denominated in the subsidiaries' currency
D) Forward sale in the subsidiaries' currency

Question 68

A U.S. company has subsidiaries whose functional currency is their local currency. Assume the subsidiaries have a positive net asset position. Which investment hedges the U.S. company's currency risk from these subsidiaries?

A) Investments in equity securities in the subsidiaries' currency
B) Investments in debt securities in the subsidiaries' currency
C) Debt denominated in the subsidiaries' currency
D) Forward purchase in the subsidiaries' currency

Question 69

Which one of the following is not an example of hedge accounting for a U.S. company?

A) A translation gain or loss on an international subsidiary is reported in other comprehensive income; changes in the value of the related hedge are also reported in other comprehensive income.
B) Changes in euro-denominated receivables are reported in income; changes in the value of the related hedge are also reported in income.
C) Changes in the value of a hedge of a forecasted sale denominated in euros are reported in other comprehensive income until the sale is made; the sale itself is reported as revenue when the sale is made.
D) Changes in the value of a euro-denominated purchase order are reported in income; changes in the value of the related hedge are also reported in income.

Question 70

Which one of the following is an example of hedge accounting for a U.S. company?

A) Remeasurement gains and losses on international subsidiaries are reported in income as incurred; changes in the value of related hedges are also reported in income as incurred.
B) Gains and losses on forward contracts not qualifying as hedges are reported in income as incurred.
C) Changes in the U.S. dollar value of foreign currency denominated purchase orders for merchandise are an adjustment to the inventory value when delivered.
D) Changes in the U.S. dollar value of euro-denominated receivables are reported in income; changes in the value of the related hedge are also reported in income.

Question 71

On November 1, 2020, a U.S. company enters into a forward sale contract, in which it agrees to sell €100,000 at a rate of $1.25 on February 1, 2021, when it expects to receive €100,000. The company's accounting year ends December 31. Changes in the value of the forward contract are reported in 2020 income in which one of the following situations?

A) The U.S. company uses the forward contract to hedge a purchase of merchandise, denominated in euros, that is expected to be made on February 1.
B) The U.S. company uses the forward contract to hedge exposure to its investment in a French subsidiary, whose functional currency is the euro.
C) The U.S. company uses the forward contract to hedge a sale of merchandise, denominated in euros, that was made on November 1.
D) The U.S. company uses the forward contract to hedge a sale of merchandise, denominated in euros, that is expected to be made on February 1.

Question 72

On November 30, 2019, a U.S. company, with a December 31 year-end, enters a forward purchase contract for €100,000 to be delivered on March 20, 2020, when the forward rate for March 20 delivery is $1.23/€. The forward contract does not qualify as a hedge. At year-end, the forward rate for delivery on March 30 is $1.21/€. The company closes the contract at its expiration date, when the spot rate is $1.24/€. At what amount are gains and losses reported in income on the forward in 2019 and 2020?
$\quad$$\quad$$\begin{array}{llcc}& \underline{ 2019 } & &&&&&& \underline {2020 } \\\end{array}$

A) $\begin{array}{lrr}\$ 0&&&&&&&&& \$ 1,000 \text { gain }\end{array}$
B) $\begin{array}{lrr}\$ 0&&&&&&&&&\$ 1,000 \text { loss }\end{array}$
C) $\begin{array}{lrr}\$ 2,000 \text { gain } &&&&& \$ 3,000 \text { loss}\end{array}$
D) $\begin{array}{lrr}\$ 2,000 \text { loss }&&&&& \$ 3,000 \text { gain}\end{array}$

Question 73

A U.S. company enters a forward purchase contract for speculative purposes. When are gains and losses on the hedge investment reported in income?

A) When the forward contract changes in market value
B) When the forward contract is closed
C) When the forward contract is determined to be an effective hedge
D) When the merchandise is sold

Question 74

On November 30, 2019, a U.S. company, with a December 31 year-end, enters a forward sale contract for £100,000 to be delivered on March 20, 2020, when the forward rate for March 20 delivery is $1.38/£. The forward contract does not qualify as a hedge. At year-end, the forward rate for delivery on March 30 is $1.375/€. The company closes the contract at its expiration date, when the spot rate is $1.40/€. At what amount are gains and losses reported in income on the forward in 2019 and 2020?
$\quad$$\quad$$\begin{array}{llcc}& \underline{ 2019 } & &&&&&& \underline {2020 } \\\end{array}$

A) $\begin{array}{lrr}\$ 0&&&&&&&&& \$ 2,000 \text { gain }\end{array}$
B) $\begin{array}{lrr}\$ 0&&&&&&&&&\$2,000 \text { loss }\end{array}$
C) $\begin{array}{lrr}\$500 \text { gain } &&&&&& \$ 2,500 \text { loss}\end{array}$
D) $\begin{array}{lrr}\$ 500 \text { loss }&&&&&& \$ 2,500 \text { gain}\end{array}$

Question 75

IFRS requires which reporting practice, not allowed under U.S. GAAP?

A) Reporting foreign currency derivative positions at cost rather than at market value
B) Reporting gains and losses on cash flow hedges as adjustments to the carrying value of related nonfinancial acquisitions
C) Reporting gains and losses on firm commitment hedges as adjustments to the carrying value of related asset acquisitions
D) Reporting foreign currency derivative positions at market rather than at cost

Question 76

A U.K. company that reports using IFRS plans on acquiring a building from a U.S. company, at a price denominated in U.S. dollars. The U.K. company locks in the price of the building, in pounds, using a forward purchase contract. The company reports a gain on the forward contract. When the gain from the forward purchase is reclassified from accumulated other comprehensive income, what is the effect?

A) Depreciation expense is reduced.
B) The equipment account is reduced.
C) A gain on hedging is reported in income.
D) When the equipment is sold, the gain on sale increases.

Question 77

An IFRS company in the U.K. hedges its forecasted purchase of equipment from a German supplier, using a forward contract to lock in the cost of the euros, in pounds, needed to pay for the equipment. The company incurs a gain on the forward. Which statement below is true?

A) The company's equipment balance on its balance sheet will be higher than if the company had used U.S. GAAP.
B) Equipment depreciation expense each year will be higher than if the company had used U.S. GAAP.
C) The company's equipment balance on its balance sheet will be lower than if the company had used U.S. GAAP.
D) Equipment depreciation expense each year will be lower than if the company had used U.S. GAAP.

Question 78

On November 30, 2019, a U.K. company, with a December 31 year-end, enters a forward purchase contract for €100,000 to be delivered for £0.75/€ on April 20, 2020. The contract hedges a forecasted purchase of equipment. At year-end, the forward rate for delivery on April 20 is £0.77/€. The forward is closed, and the equipment purchased on April 20, when the spot rate is £0.78/€. The company follows IFRS. Assuming no residual value, total depreciation expense over the life of the equipment is:

A) £75,000
B) £78,000
C) £72,000
D) £74,000

Question 79

U.S. and IFRS hedge accounting standards divide up hedges into three categories. What are the three categories?

A) Hedging using forwards, options, and swaps
B) FV-NI hedges, FV-OCI hedges, and unreported hedges
C) Short hedges, long hedges, and neutral hedges
D) Fair value hedges, cash flow hedges, and hedges of net investments

Question 80

IFRS and U.S. GAAP for hedge accounting differ on which of the following points?

A) U.S. GAAP requires an initial quantitative evaluation of hedge effectiveness, while IFRS only requires that the hedge fits with the company's risk management strategy.
B) U.S. GAAP requires changes in the value of all speculative hedges to be reported in income, while IFRS allows speculative hedge gains and losses to be reported in other comprehensive income.
C) U.S. GAAP requires changes in the value of cash flow hedges to be reclassified from other comprehensive income when the hedged transaction is reported in income, while IFRS allows permanent reporting of these gains and losses in AOCI.
D) IFRS requires gains and losses on hedges to be reported in the same income line with losses and gains on the hedged item, while U.S. GAAP is silent on this issue.