Based on the preceding information, what journal entry would Imperial make on December 31, 2008, to revalue foreign currency payable to equivalent U.S.. Based on the preceding informatio
Trang 1Chapter 11 Multinational Accounting: Foreign Currency Transactions and Financial
Instruments
Multiple Choice Questions
1 If 1 British pound can be exchanged for 180 cents of U.S currency, what fraction should be used to compute the indirect quotation of the exchange rate expressed in British pounds?
A 1.7655 Singapore dollars and 1.4235 Cyprus pounds respectively
B 0.2975 Singapore dollars and 1.5132 Cyprus pounds respectively
C 2.1622 Singapore dollars and 0.4625 Cyprus pounds respectively
D 1.4235 Singapore dollars and 0.3979 Cyprus pounds respectively
3 Based on the information given above, how many U.S dollars must be paid for a purchase of citrus fruits costing 10,000 Cyprus pounds?
A $25,132
B $15,132
C $3,979
D $35,775
Trang 24 Based on the information given above, how many Singapore dollars are required to purchase goods costing 10,000 US dollars?
6 Chicago based Corporation X has a number of importing transactions with companies based
in UK Importing activities result in payables If the settlement currency is the British Pound, which of the following will happen by changes in the direct or indirect exchange rates?
Trang 37 Chicago based Corporation X has a number of exporting transactions with companies based
in Sweden Exporting activities result in receivables If the settlement currency is the Swedish Krona, which of the following will happen by changes in the direct or indirect exchange rates?
Trang 49 Mint Corporation has several transactions with foreign entities Each transaction is
denominated in the local currency unit of the country in which the foreign entity is located On October 1, 2008, Mint purchased confectionary items from a foreign company at a price of LCU 5,000 when the direct exchange rate was 1 LCU = $1.20 The account has not been settled as of December 31, 2008, when the exchange rate has decreased to 1 LCU = $1.10 The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:
A $500 loss
B $500 gain
C $378 gain
D $5,500 loss
10 Mint Corporation has several transactions with foreign entities Each transaction is
denominated in the local currency unit of the country in which the foreign entity is located On November 2, 2008, Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08 The account has not been settled as
of December 31, 2008, when the exchange rate has increased to 1 LCU = $1.10 The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:
A $460 loss
B $387 loss
C $387 gain
D $460 gain
Trang 511 On September 3, 2008, Jackson Corporation purchases goods for a U.S dollar equivalent of
$17,000 from a Swiss company The transaction is denominated in Swiss francs (SFr) The payment is made on October 10 The exchange rates were:
Trang 612 On March 1, 2008, Wilson Corporation sold goods for a U.S dollar equivalent of $31,000
to a Thai company The transaction is denominated in Thai bahts The payment is received on May 10 The exchange rates were:
Trang 713 Based on the preceding information, what journal entry would Imperial make on December
31, 2008, to revalue foreign currency payable to equivalent U.S dollar value?
14 Based on the preceding information, what journal entry would Imperial make on January
10, 2009, to revalue foreign currency payable to equivalent U.S dollar value?
Trang 815 Based on the preceding information, what was the overall foreign currency gain or loss on the accounts payable transaction?
of E£ = $.1850 The forward contract was acquired to manage the exposed net liability position
in Egyptian pounds, but it was not designated as a hedge The spot rates were:
16 Based on the preceding information, in the entry made on December 2nd to revalue foreign currency receivable to current equivalent U.S dollar value,
A Accounts Payable will be debited for $18,350
B Foreign Currency Units will be debited for $18,500
C Foreign Currency Transaction Gain will be credited for $150
D Other Comprehensive Income will be credited for $300
Trang 917 Based on the preceding information, what is the entry required to settle foreign currency payable on December 2?
18 Detroit based Auto Corporation, purchased ancillaries from a Japanese firm on December 1,
2008, for 1,000,000 Yen, when the spot rate for Yen was $.0095 On December 31, 2008, the spot rate stood at $.0096 On January 10, 2009 Auto paid 1,000,000 Yen acquired at a rate of
$.0094 Auto's income statements should report a foreign exchange gain or loss for the years ended December 31, 2008 and 2009 of:
Trang 1019 On November 1, 2008, Denver Company borrowed 500,000 local currency units (LCU) from a foreign lender evidenced by an interest-bearing note due on November 1, 2009, which is denominated in the currency of the lender The U.S dollar equivalent of the note principal was
A be included as a separate component of stockholders' equity at Dec 31, 2009
B be included as a component of income from continuing operations for 2009
C be included as a deferred charge at December 31, 2009
D not be reported until January 10, 2010, the settlement date
Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian reals on December 1, 2008, with payment due on January 20, 2009 The exchange rates were:
Trang 1121 Based on the preceding information, which of the following is true of dollar's movement vis-à-vis Brazilian real during the period?
Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$)
on January 1, 2009 with settlement to be in 60 days On the same date, Alman entered into a day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order
60-to manage its exposed foreign currency receivable The forward contract is not designated as a hedge The spot rates were:
Trang 1223 Based on the preceding information, the entry to revalue foreign currency payable to current U.S dollar value on March 1 will have:
A a credit to Foreign Currency Transaction Gain for $1,500
B a debit to Foreign Currency Transaction Loss for $2,500
C a debit to Foreign Currency Transaction Loss for $1,500
D a credit to Foreign Currency Transaction Gain for $1,000
24 Based on the preceding information, what is the overall effect on net income of Myway's use of the forward exchange contract?
In its income statement for the year ended December 31, 2008, what amount of loss should Levin report from this forward contract?
A $0
Trang 13Taste Bits Inc purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1, 2008 Payment is due on January 30, 2009 On December 1, 2008, the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs The forward contract is not designated as a hedge The rates were as follows:
27 Based on the preceding information, the entries on December 31, 2008, include a:
A Credit to Foreign Currency Payable to Exchange Broker, $4,000
B Debit to Foreign Currency Receivable from Exchange Broker, $6,000
C Debit to Foreign Currency Receivable from Exchange Broker, $186,000
D Debit to Foreign Currency Transaction Gain, $4,000
28 Based on the preceding information, the entries on January 30, 2009, include a:
A Debit to Dollars Payable to Exchange Broker, $180,000
B Credit to Cash, $184,000
C Credit to Premium on Forward Contract, $4,000
D Credit to Foreign Currency Receivable from Exchange Broker, $180,000
29 Based on the preceding information, the entries on January 30, 2009, include a:
A Credit to Foreign Currency Units (SFr), $184,000
B Credit to Cash, $180,000
C Debit to Foreign Currency Transaction Loss, $4,000
D Debit to Dollars Payable to Exchange Broker, $184,000
30 Based on the preceding information, the entries on January 30, 2009, include a:
A Debit to Dollars Payable to Exchange Broker, $184,000
B Credit to Foreign Currency Transaction Gain, $4,000
C Credit to Foreign Currency Receivable from Exchange Broker, $180,000
D Debit to Foreign Currency Units (SFr), $184,000
Trang 14On December 1, 2008, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds (£) at a forward rate of £1 = $1.78 On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.The rates are as follows:
Hedge had no other speculation transactions in 2008 and 2009 Ignore taxes
31 Based on the preceding information, what is the effect of the British pound speculative contract on 2008 net income?
Trang 1534 Based on the preceding information, what is the overall effect of speculation on 2009 net income?
Trang 1637 Based on the preceding information, which of the following is true of the intrinsic and time values associated with this option.
38 Based on the preceding information, the call option:
A has no intrinsic value currently
B is at the money
C is out of the money
D is in the money
39 An investor purchases a put option with a strike price of $100 for $3 This option is
considered "in the money" if the underlying is trading:
A below $100
B at $100
C above $100
D above $103
40 Which of the following observations is true of futures contracts?
A Contracted through a dealer, usually a bank
B Customized to meet contracting company's terms and needs
C Typically no margin deposit required
D Traded on an exchange and acquired through an exchange broker
Trang 1741 Which of the following observations is true of forwards contracts?
A Substantial margin is required to initiate a contract
B Must be completed either with the underlying's future delivery or net
C cash settlement
D Cannot be customized; for a specific amount at a specific date
E Usually settled with a net cash amount prior to maturity date
42 Company X issues variable-rate debt but wishes to fix its interest rates because it believes the variable rate may increase Company Y has a fixed-rate bond but is looking for a variable-rate interest because it assumes the interest rates may decrease The two companies agree to exchange cash flows Such an arrangement is called:
A a futures contract
B a forward contract
C a swap
D an option
Trang 18Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil On November 30, 2008, AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4 per barrel, with a February 1, 2009, call date The following is the pricing information for the term of the call:
The information for the change in the fair value of the options follows:
On February 1, 2009, AMAR sells the options at their value on that date and acquires 20,000 barrels of oil at the spot price On April 1, 2009, AMAR sells the oil for $112 per barrel
Trang 1943 Based on the preceding information, which of the following adjusting entries would be required on December 31, 2008?
44 Based on the preceding information, in the entry to record the increase in the intrinsic value
of the options on December 31, 2008,
A Purchased Call Options will be credited for $100,000
B Purchased Call Options will be debited for $130,000
C Retained Earnings will be credited for $100,000
D Other Comprehensive Income will be credited for $100,000
Trang 2045 Based on the preceding information, which of the following entries will be required on February 1, 2009?
46 Based on the preceding information, the entries made on April 1, 2009 will include:
A a debit to Other Comprehensive Income for $200,000
B a debit to Cost of Goods Sold for $2,240,000
C a credit to Oil Inventory for $2,240,000
D a credit to Cost of Goods Sold for $100,000
Trang 21On December 1, 2008, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share Winston classifies them as available-for-sale securities On this same date, it decides to hedge against a possible decline in the value of the securities by purchasing,
at a cost of $250, an at-the-money put option to sell the 100 shares at $40 per share The option expires on February 20, 2009 Selected information concerning the fair values of the investment and the options follow:
Assume that Winston exercises the put option and sells Linked shares on February 20, 2009
47 Based on the preceding information, what is the market price of Linked Corporation stock
Trang 2249 Based on the preceding information, the journal entry made on December 31, 2008 to record decrease in the time value of the options will include:
A a debit to Loss on Hedge Activity for $150
B a credit to Put Option for $300
C a debit to Loss on Hedge Activity for $300
D a credit to Put Option for $100
50 Based on the preceding information, which of the following journal entries will be made on February 20, 2009?
Trang 2351 Quantum Company imports goods from different countries Some transactions are
denominated in U.S dollars and others in foreign currencies A summary of accounts receivable and accounts payable on December 31, 2008, before adjustments for the effects of changes in exchange rates during 2008, follows:
The spot rates on December 31, 2008, were:
The average exchange rates during the collection and payment period in 2009 are:
Required:
1) Prepare the adjusting entries on December 31, 2008
2) Record the collection of the accounts receivable and the payment of the accounts payable in 2009
3) What was the foreign currency gain or loss on the accounts receivable transaction
denominated in SFr for the year ended December 31, 2008? For the year ended December 31, 2009? Overall for this transaction?
4) What was the foreign currency gain or loss on the accounts receivable transaction
denominated in ¥? For the year ended December 31, 2008? For the year ended December 31, 2009? Overall for this transaction?
Trang 2452 On December 1, 2008, Secure Company bought a 90-day forward contract to purchase 200,000 euros (€) at a forward rate of €1 = $1.35 when the spot rate was $1.33 Other exchange rates were as follows:
Required
1) Prepare all journal entries related to Secure Company's foreign currency speculation from December 1, 2008, through March 1, 2009, assuming the fiscal year ends on December 31, 2008
2) Did the company gain or lose on its purchase of the forward contract?
Trang 2553 On December 1, 2008, Denizen Corporation entered into a 120-day forward contract to purchase 200,000 Canadian dollars (C$) Denizen's fiscal year ends on December 31 The forward contract was to hedge a firm commitment agreement made on December 1, 2008, to purchase electronic goods on January 30, with payment due on March 31, 2008 The derivative
is designated as a fair value hedge The direct exchange rates follow:
Required:
Prepare all journal entries for Denizen Corporation
Trang 2654 On December 1, 2008, Denizen Corporation entered into a 120-day forward contract to purchase 200,000 Canadian dollars (C$) Denizen's fiscal year ends on December 31 The forward contract was to hedge an anticipated purchase of electronic goods on January 30, 2009 The purchase took place on January 30, with payment due on March 31, 2009 The derivative is designated as a cash flow hedge The company uses the forward exchange rate to measure hedge effectiveness The direct exchange rates follow:
Required:
Prepare all journal entries for Denizen Corporation
Trang 2755 On December 1, 2008, Merry Corporation acquired 100 shares of Venus Corporation at a cost of $60 per share Merry classifies them as available-for-sale securities On this same date, it decides to hedge against a possible decline in the value of the securities by purchasing, at a cost
of $400, an at-the-money put option to sell the 100 shares at $60 per share The option expires
on February 20, 2009 Selected information concerning the fair values of the investment and the options follow:
Assume that Merry exercises the put option and sells Venus shares on February 20, 2009
Chapter 11 Multinational Accounting: Foreign Currency Transactions and
Financial Instruments Answer Key
Trang 28
Multiple Choice Questions
1 If 1 British pound can be exchanged for 180 cents of U.S currency, what fraction should be used to compute the indirect quotation of the exchange rate expressed in British pounds?
A 1.7655 Singapore dollars and 1.4235 Cyprus pounds respectively
B 0.2975 Singapore dollars and 1.5132 Cyprus pounds respectively
C 2.1622 Singapore dollars and 0.4625 Cyprus pounds respectively
D 1.4235 Singapore dollars and 0.3979 Cyprus pounds respectively.
Trang 294 Based on the information given above, how many Singapore dollars are required to purchase goods costing 10,000 US dollars?
Trang 306 Chicago based Corporation X has a number of importing transactions with companies based
in UK Importing activities result in payables If the settlement currency is the British Pound, which of the following will happen by changes in the direct or indirect exchange rates?
AACSB: Reflective Thinking
AICPA: Decision Making
7 Chicago based Corporation X has a number of exporting transactions with companies based
in Sweden Exporting activities result in receivables If the settlement currency is the Swedish Krona, which of the following will happen by changes in the direct or indirect exchange rates?
Trang 318 Corporation X has a number of exporting transactions with companies based in Vietnam Exporting activities result in receivables If the settlement currency is the US dollar, which of the following will happen by changes in the direct or indirect exchange rates?
AACSB: Reflective Thinking
AICPA: Decision Making
9 Mint Corporation has several transactions with foreign entities Each transaction is
denominated in the local currency unit of the country in which the foreign entity is located On October 1, 2008, Mint purchased confectionary items from a foreign company at a price of LCU 5,000 when the direct exchange rate was 1 LCU = $1.20 The account has not been settled as of December 31, 2008, when the exchange rate has decreased to 1 LCU = $1.10 The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:
Trang 3210 Mint Corporation has several transactions with foreign entities Each transaction is
denominated in the local currency unit of the country in which the foreign entity is located On November 2, 2008, Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08 The account has not been settled as
of December 31, 2008, when the exchange rate has increased to 1 LCU = $1.10 The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:
11 On September 3, 2008, Jackson Corporation purchases goods for a U.S dollar equivalent of
$17,000 from a Swiss company The transaction is denominated in Swiss francs (SFr) The payment is made on October 10 The exchange rates were:
Trang 3312 On March 1, 2008, Wilson Corporation sold goods for a U.S dollar equivalent of $31,000
to a Thai company The transaction is denominated in Thai bahts The payment is received on May 10 The exchange rates were: