The foreign exchange rate for the immediate delivery of currencies exchanged is called the: A) forward rate. B) historical rate. C) spot rate. D) market rate. E) swap rate.
Spot Rate
On November 1 of the current year, Patriot Inc. purchased a container of electrical components from its supplier in Japan. Patriot agreed to pay 15,000,000 ¥ in 90 days. The exchange rate on November 1 was $1 = 120 ¥. Patriot decided to hedge the transaction and entered into a 90 day forward contract to purchase yen at a cost of $1 = 125 ¥. The 60 day forward rate that would take Patriot to the December 31 fiscal year end was $1 = 127.50 ¥. On December 31, the spot rate was $1 = 118 ¥, and the 30-day forward rate was $1 = 122 ¥. What is the balance in the forward contract account on November 1 of the current year? (For purposes of this exercise, use a present value factor of 1.) A) $0 B) $5,000 debit C) $5,000 credit D) $2,353 debit E) $7,353 credit
a) $0 The value of a forward contract on the day it is taken out is always $0.
On November 1 of the current year, Patriot Inc. purchased a container of electrical components from its supplier in Japan. Patriot agreed to pay 15,000,000 ¥ in 90 days. The exchange rate on November 1 was $1 = 120 ¥. Patriot decided to hedge the transaction and entered into a 90 day forward contract to purchase yen at a cost of $1 = 125 ¥. The 60 day forward rate that would take Patriot to the December 31 fiscal year end was $1 = 127.50 ¥. On December 31, the spot rate was $1 = 118 ¥, and the 30-day forward rate was $1 = 122 ¥. What is the balance in the forward contract account on December 31 of the current year? (For purposes of this exercise, use a present value factor of 1.) A) $7,119 debit B) $7,119 credit C) $2,951 debit D) $2,951 credit E) $120,000 debit
C) $2,951 CreditCompare the forward contract rate to the currently available rate that will take us to the due date.a. Cost of a current 30 Day forward Contract (15,000,000/122) $122,951b. Cost of Yen at the contracted rate (15,000,000/125) $120,000Value of the forward contract a-b= $2,951 This is a debit balance because we are better off having hedged the transaction on November 1 of the current year than we would be if we had waited until December 31 to hedge the transaction.
NOD Corp. (a U.S.-based company) sold parts to a Hong Kong customer on December 15 with payment of 100,000 Hong Kong dollars to be received in thirty days on January 15. The following exchange rates apply:Spot Forward Rate 1/1512/15 $0.15 $0.1612/31 $0.16 $0.171/15 $0.17 $0.18Assuming no forward contract was entered into, how much foreign exchange gain or loss should NOD report on its December 31 income statement with regard to this transaction? (For purposes of this exercise, use a present value factor of 1.) A) no gain or loss B) $1,000 loss C) $3,000 loss D) $1,000 gain E) $3,000 gain
D) $1,000Dollar Value of receivable @ 12/31/CY (100,000 HK * $.16) 16,000Dollar Value of receivable @ 12/15/CY (100,000 HK * $.15)Increase $ 1,000 Gain
NOD Corp. (a U.S.-based company) sold parts to a Hong Kong customer on December 15 with payment of 100,000 Hong Kong dollars to be received in thirty days on January 15. The following exchange rates apply:Spot Forward Rate 1/1512/15 $0.15 $0.1612/31 $0.16 $0.171/15 $0.17 $0.18Assuming a forward contract was entered into on December 15 to hedge this foreign currency transaction, what would be the net impact on income for year ending December 31? (For purposes of this exercise, use a present value factor of 1.)A) no impact on incomeB) $1,000 increase in incomeC) $1,000 decrease in incomeD) $2,000 increase in incomeE) $2,000 decrease in income
A) no impact on incomeThe fair value of the forward contract on December 31 of the current year is the difference between the dollars NOD will receive as a result of entering into the forward contract at December 15 of the current year (100,000 HK$ x $.16=$16,000) and the dollars NOD would have received if the forward contract had been established at December 31 (100,000 DM x $.17 = $17,000). The fair value of the forward contract at December 31 of the current year is negative $1,000 which would be recorded as a liability and as a loss on forward contract.
NOD Corp. (a U.S.-based company) sold parts to a Hong Kong customer on December 15 with payment of 100,000 Hong Kong dollars to be received in thirty days on January 15. The following exchange rates apply:Spot Forward Rate 1/1512/15 $0.15 $0.1612/31 $0.16 $0.171/15 $0.17 $0.18Assuming a forward contract was entered into on December 15 to hedge this foreign currency transaction, what would be the net impact on income that should be recorded on January 15? (For purposes of this exercise, use a present value factor of 1.)A) no impact on incomeB) $1,000 increase in incomeC) $1,000 decrease in incomeD) $2,000 increase in incomeE) $2,000 decrease in income
A) no impact on incomeThe fair value of the forward contract on January 15 is the difference between the dollars NOD will receive as a result of entering into the forward contract at December 15 of the current year (100,000 HK$ x $.17=$17,000) and the dollars NOD would have received if the forward contract had been established at January 15 (100,000 HK $ x $.18 = $18,000). The fair value of the forward contract at January is a negative $2,000. The $1,000 increase in loss needs to be recorded on the forward contract. See 5 above for the calculation at year end.See #4 for the dollar value of receivable at 12/31; The receivable value is now $17,000 (100,000 HK $ x $.17=$17,000) and this $1,000 increase is an additional foreign exchange gain.
The price today at which a foreign currency can be purchased or sold in the future. A) forward rate. B) historical rate. C) spot rate. D) market rate. E) swap rate.
A) forward rate.
On December 15 of last year Duster Inc. entered into a forward contract to purchase 100,000 yen in sixty days. The relevant exchange rates are as follows:Date Forward Rate 2/1511/15 $0.0075 $0.008612/15 $0.0081 $0.008312/31 $0.0089 $0.00852/15 $.0084 $0.0084Duster entered into the forward contract to hedge a purchase of inventory made on November 15 payable on February 15 of the next year. At December 15 of last year what is the fair value of this forward contract? (For purposes of this exercise, use a present value factor of 1.) A) $ 810 B) $ 830 C) $ 860 D) $ 20 E) $ - 0
E) $ - 0 On December 15, the contracted rate for a February 15 delivery and the forward rate to February 15 are both the same, since there is no difference, there is no fair value recorded for the forward contract on December 15.
On December 15 of last year Duster Inc. entered into a forward contract to purchase 100,000 yen in sixty days. The relevant exchange rates are as follows:Date Forward Rate 2/1511/15 $0.0075 $0.008612/15 $0.0081 $0.008312/31 $0.0089 $0.00852/15 $.0084 $0.0084what is the fair value of the forward contract on December 31? (For purposes of this exercise, use a present value factor of 1.) A) $ 20 debit B) $ 20 credit C) $ 60 debit D) $ 10 credit E) $ - 0
B) $ 20 creditThe (0.0K)100,000 will be converted at February 15 at the contracted rate of $.0083, or $830. If we had waited until December 31 to hedge the inventory purchase, we could have obtained a forward rate of $.0085, resulting in $850 on February 15. We have a $20 difference that should be classified as a liability.
On December 15 of last year Duster Inc. entered into a forward yen in sixty days. The relevant exchange rates are as follows:Date Forward Rate 2/1511/15 $0.0075 $0.008612/15 $0.0081 $0.008312/31 $0.0089 $0.00852/15 $.0084 $0.0084what is the amount of gain or loss relating to this forward contract that Duster should record on February 15? (For purposes of this exercise, use a present value factor of 1.) A) $ 10 loss B) $ 20 loss C) $ 10 gain D) $ 20 gain E) $ - 0
C) $ 10 gainThe value of the forward contract on December 31 was a $20 credit balance. The fair value of the forward contract on February 15 of the next year is a $10
The exchange rate at which the option will be executed if the holder decides to exercise the option is the: A) strike price. B) intrinsic value. C) spot rate. D) forward rate. E) option price.
A) strike price.
Using a forward contract to hedge a transaction that hasn't taken place yet, but likely WILL take place (such as receiving an order for future delivery of goods from a customer) is:A) Not allowed by GAAPB) Is called a Fair Value HedgeC) Is called a Cash Flow HedgeD) Is called a hedge of a firm commitment.E) Is called a hedge of a future commitment.
D) Is called a hedge of a firm commitment.
Hedges of foreign currency firm commitments are used forA) Sales onlyB) Purchases onlyC) Current purchases or salesD) Future sales or purchasesE) None of the above
D) Future sales or purchases
Which one of the following relationships between fluctuations in exchange rates and foreign exchange gains and losses is true?A) For an import purchase, a gain results when foreign currency appreciates.B) For an export sale, a loss results when foreign currency appreciates.C) For an export sale, a gain results when foreign currency appreciates.D) For an import purchase, a loss results when foreign currency depreciates.E) None of the above
C) For an export sale, a gain results when foreign currency appreciates.
In accounting for foreign exchange currency, the United States uses: A) One-transaction perspective that defers foreign exchange gains and losses.B) One-transaction perspective that accrues foreign exchange gains and losses.C) Two-transaction perspective that defers foreign exchange gains and losses.D) Two-transaction perspective that accrues foreign exchange gains and losses.E) None of the above
D) Two-transaction perspective that accrues foreign exchange gains and losses.
Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2011. Pigskin received payment of 35,000 British pounds on May 8, 2011. The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May 8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar) A. $10,500 lossB. $10,500 gainC. $1,750 lossD. $3,850 lossE. No gain or loss should be recognized.
d
Norton Co., a U.S. corporation, sold inventory on December 1, 2011, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: Date Spot Rate 12/1 $1.7241 12/31 $1.81821/30 $1.6666For what amount should Sales be credited on December 1? A. $5,500.B. $16,949.C. $18,182.D. $17,241.E. $16,667.
d
Norton Co., a U.S. corporation, sold inventory on December 1, 2011, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: Date Spot Rate 12/1 $1.7241 12/31 $1.81821/30 $1.6666What amount of foreign exchange gain or loss should be recorded on December 31? A. $300 gain.B. $300 loss.C. $0.D. $941 loss.E. $941 gain.
e
Norton Co., a U.S. corporation, sold inventory on December 1, 2011, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: Date Spot Rate 12/1 $1.7241 12/31 $1.81821/30 $1.6666What amount of foreign exchange gain or loss should be recorded on January 30? A. $1,516 gain.B. $1,516 loss.C. $575 loss.D. $500 loss.E. $500 gain
b
Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows: Date Spot Rate 5/8 $1.25 5/31 $1.266/7 $1.22For what amount should Brisco's Accounts Payable be credited on May 8? A. $2,500,000.B. $2,440,000.C. $1,600,000.D. $1,639,344.E. $1,666,667.
a
Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows: Date Spot Rate 5/8 $1.25 5/31 $1.266/7 $1.22How much Foreign Exchange Gain or Loss should Brisco record on May 31? A. $2,520,000 gain.B. $20,000 gain.C. $20,000 loss.D. $80,000 gain.E. $80,000 loss.
c
Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows: Date Spot Rate 5/8 $1.25 5/31 $1.266/7 $1.22How much US $ will it cost Brisco to finally pay the payable on June 7? A. $1,666,667.B. $2,440,000.C. $2,520,000.D. $2,500,000.E. $2,400,000.
e
On June 1, CamCo received a signed agreement to sell inventory for ¥500,000. The sale would take place in 90 days. CamCo immediately signed a 90-day forward contract to sell the yen as soon as they are received. The spot rate on June 1 was ¥1 =$.004167, and the 90-day forward rate was ¥1 = $.00427. At what amount would CamCo record the Forward Contract on June 1? A. $2,083.B. $0.C. $2,110.D. $2,532.E. $2,135.
b
Belsen purchased inventory on December 1, 2010. Payment of 200,000 stickles was to be made in sixty days. Also on December 1, Belsen signed a contract to purchase §200,000 in sixty days. The spot rate was §1 = .35714, and the 60-day forward rate was §1 = $.38462. On December 31, the spot rate was §1 = .34483 and the 30-day forward rate was §1 = .38168. Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901. In the journal entry to record the establishment of a forward exchange contract, at what amount should the Forward Contract account be recorded on December 1? A. $71,428.B. $76,924.C. $588.D. $582.E. $0, since there is no cost, there is no value for the contract at this date
e
Meisner Co. ordered parts costing §100,000 for a foreign supplier on May 12 when the spot rate was $.24 per stickle. A one-month forward contract was signed on that date to purchase §100,000 at a forward rate of $.25 per stickle. On June 12, when the parts were received and payment was made, the spot rate was $.28 per stickle. At what amount should inventory be reported? A. $0.B. $28,000.C. $24,000.D. $25,000.E. $2,000
b
Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2011, with payment of 10 million Korean won to be received on January 15, 2012. The following exchange rates applied: Date Spot Rate Forward 1/1512/16/11 $0.00092 $0.0009812/31/11 $0.00090 $0.000931/31/11 $0.00095 $0.00095Assuming a forward contract was not entered into, what would be the net impact on Car Corp.'s 2011 income statement related to this transaction? A. $500 (gain).B. $500 (loss).C. $200 (gain).D. $200 (loss).E. $- 0 -
d
Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2011, with payment of 10 million Korean won to be received on January 15, 2012. The following exchange rates applied:Date Spot Rate Forward 1/1512/16/11 $0.00092 $0.0009812/31/11 $0.00090 $0.000931/31/11 $0.00095 $0.00095 Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901. A. $700 (gain).B. $700 (loss).C. $300 (gain).D. $300 (loss).E. $295 (gain).
e
Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2011, with payment of 10 million Korean won to be received on January 15, 2012. The following exchange rates applied: Date Spot Rate Forward 1/1512/16/11 $0.00092 $0.0009812/31/11 $0.00090 $0.000931/31/11 $0.00095 $0.00095 Assuming a forward contract was entered into on December 16, what would be the net impact on Car Corp.'s 2012 income statement related to this transaction? A. $500 (gain).B. $305 (gain).C. $300 (gain).D. $300 (loss).E. $0
b
Mills Inc. had a receivable from a foreign customer that is due in the local currency of the customer (stickles). On December 31, 2010, this receivable for §200,000 was correctly included in Mills' balance sheet at $132,000. When the receivable was collected on February 15, 2011, the U.S. dollar equivalent was $144,000. In Mills' 2011 consolidated income statement, how much should have been reported as a foreign exchange gain? A. $0.B. $36,000.C. $48,000.D. $10,000.E. $12,000
e
A spot rate may be defined as A. The price a foreign currency can be purchased or sold today.B. The price today at which a foreign currency can be purchased or sold in the future.C. The forecasted future value of a foreign currency.D. The U.S. dollar value of a foreign currency.E. The Euro value of a foreign currency.
a
The forward rate may be defined as A. The price a foreign currency can be purchased or sold today.B. The price today at which a foreign currency can be purchased or sold in the future.C. The forecasted future value of a foreign currency.D. The U.S. dollar value of a foreign currency.E. The Euro value of a foreign currency.
b
Which statement is true regarding a foreign currency option? A. A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future.B. A foreign currency option gives the holder the obligation only sell foreign currency in the future.C. A foreign currency option gives the holder the obligation to only buy foreign currency in the future.D. A foreign currency option gives the holder the right but not the obligation to buy or sell foreign currency in the future.E. A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future at the spot rate on the future date.
d
A U.S. company sells merchandise to a foreign company denominated in U.S. dollars. Which of the following statements is true? A. If the foreign currency appreciates, a foreign exchange gain will result.B. If the foreign currency depreciates, a foreign exchange gain will result.C. No foreign exchange gain or loss will result.D. If the foreign currency appreciates, a foreign exchange loss will result.E. If the foreign currency depreciates, a foreign exchange loss will result.
c
A U.S. company sells merchandise to a foreign company denominated in the foreign currency. Which of the following statements is true? A. If the foreign currency appreciates, a foreign exchange gain will result.B. If the foreign currency depreciates, a foreign exchange gain will result.C. No foreign exchange gain or loss will result.D. If the foreign currency appreciates, a foreign exchange loss will result.E. Any gain or loss will be included in comprehensive income.
a
A U.S. company buys merchandise from a foreign company denominated in U.S. dollars. Which of the following statements is true? A. If the foreign currency appreciates, a foreign exchange gain will result.B. If the foreign currency depreciates, a foreign exchange gain will result.C. No foreign exchange gain or loss will result.D. If the foreign currency appreciates, a foreign exchange loss will result.E. Any gain or loss will be included in comprehensive income.
c
A U.S. company buys merchandise from a foreign company denominated in the foreign currency. Which of the following statements is true? A. If the foreign currency appreciates, a foreign exchange gain will result.B. If the foreign currency depreciates, a foreign exchange loss will result.C. No foreign exchange gain or loss will result.D. If the foreign currency appreciates, a foreign exchange loss will result.E. Any gain or loss will be included in comprehensive income.
d
U.S. GAAP provides guidance for hedges of all the following sources of foreign exchange risk except A. Recognized foreign currency denominated assets and liabilities.B. Unrecognized foreign currency firm commitments.C. Forecasted foreign currency denominated transactions.D. Net investment in foreign operations.E. Deferred foreign currency gains and losses.
e
All of the following data may be needed to determine the fair value of a forward contract at any point in time except A. The forward rate when the forward contract was entered into.B. The current forward rate for a contract that matures on the same date as the forward contract entered into.C. The future spot rate.D. A discount rate.E. The company's incremental borrowing rate.
c
A forward contract may be used for which of the following?1) A fair value hedge of an asset.2) A cash flow hedge of an asset.3) A fair value hedge of a liability.4) A cash flow hedge of a liability. A. 1 and 3B. 2 and 4C. 1 and 2D. 1, 3, and 4E. 1, 2, 3, and 4
e
A company has a discount on a forward contract for a foreign currency denominated asset. How is the discount recognized over the life of the contract under fair value hedge accounting? A. As a debit to discount expense.B. As a debit to amortization expense.C. As a debit to accumulated other comprehensive income.D. As a debit impact on net income, as a result of the hedge.E. As a decreases to sales.
d
Which of the following statements is true concerning hedge accounting? A. Hedges of foreign currency firm commitments are used for future sales only.B. Hedges of foreign currency firm commitments are used for future purchases only.C. Hedges of foreign currency firm commitments are used for current sales or purchases.D. Hedges of foreign currency firm commitments are used for future sales or purchases.E. Hedges of foreign currency firm commitments are speculative in nature.
d
. All of the following hedges are used for future purchase/sale transactions except A. Forward contracts used as a fair value hedge of a firm commitment.B. Options used as a fair value hedge of a firm commitment.C. Option contract cash flow hedge of a forecasted transaction.D. Forward contract cash flow hedges of a forecasted transaction.E. Forward contracts used to hedge a foreign currency denominated liability.
e
On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: Date Spot Rate Option Prem.12/1/11 $0.97 $0.0512/31/11 $0.95 $0.041/31/11 $0.94 $0.03 Compute the fair value of the foreign currency option at December 1, 2011. A. $6,000.B. $4,500.C. $3,000.D. $7,500.E. $1,500.
d
On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: Date Spot Rate Option Prem.12/1/11 $0.97 $0.0512/31/11 $0.95 $0.041/31/11 $0.94 $0.03 Compute the fair value of the foreign currency option at December 31, 2011. A. $6,000B. $4,500.C. $3,000.D. $7,500.E. $1,500.
a
On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: Date Spot Rate Option Prem.12/1/11 $0.97 $0.0512/31/11 $0.95 $0.041/31/11 $0.94 $0.03 Compute the fair value of the foreign currency option at February 1, 2012. A. $6,000.B. $4,500.C. $3,000.D. $7,500.E. $1,500.
b
On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: Date Spot Rate Option Prem.12/1/11 $0.97 $0.0512/31/11 $0.95 $0.041/31/11 $0.94 $0.03 Compute the U.S. dollars received on February 1, 2012. A. $138,000.B. $136,500.C. $145,500.D. $141,000.E. $142,500.
c
Which of the following approaches is used in the United States in accounting for foreign currency transactions? A. One-transaction perspective; defer foreign exchange gains and losses.B. Two-transaction perspective; accrue foreign exchange gains and losses.C. Three-transaction perspective; defer foreign exchange gains and losses.D. One-transaction perspective; accrue foreign exchange gains and losses.E. Two-transaction perspective; defer foreign exchange gains and losses.
b
When a U.S. company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss? A. The transaction is denominated in U.S. dollars.B. The option strike price to sell foreign currency is less than the spot rate of the currency.C. The option strike price to buy foreign currency is less than the spot rate of the currency.D. The foreign currency appreciated in value relative to the U.S. dollar.E. The foreign currency depreciated in value relative to the U.S. dollar.
a
Alpha, Inc., a U.S. company, had a receivable from a customer that was denominated in Mexican pesos. On December 31, 2010, this receivable for 75,000 pesos was correctly included in Alpha's balance sheet at $8,000. The receivable was collected on March 2, 2011, when the U.S. equivalent was $6,900. How much foreign exchange gain or loss will Alpha record on the income statement for the year ended December 31, 2011? A. $1,100 loss.B. $1,100 gain.C. $6,900 loss.D. $6,900 gain.E. $8,000 gain.
a
On April 1, 2010, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2011. The dollar value of the loan was as follows: Date Amount 4/1/10 $97,00012/31/10 $103,0004/1/11 $105,000 How much foreign exchange gain or loss should be included in Shannon's 2010 income statement? A. $3,000 gain.B. $3,000 loss.C. $6,000 gain.D. $6,000 loss.E. $7,000 gain.
d
On April 1, 2010, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2011. The dollar value of the loan was as follows: Date Amount 4/1/10 $97,00012/31/10 $103,0004/1/11 $105,000 How much foreign exchange gain or loss should be included in Shannon's 2011 income statement? A. $1,000 gain.B. $1,000 loss.C. $2,000 gain.D. $2,000 loss.E. $8,000 loss
d
Angela, Inc., a U.S. company, had a euro receivable from exports to Spain and a British pound payable resulting from imports from England. Angela recorded foreign exchange gain related to both its euro receivable and pound payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date? Euro PoundA) Increase Increase Euro PoundA) Increase Increase B) Increase DecreaseC) Decrease Decrease D) Decrease IncreaseE) No Change Decrease A. AboveB. B aboveC. C aboveD. D aboveE. E above
b
Frankfurter Company, a U.S. company, had a ruble receivable from exports to Russia and a euro payable resulting from imports from Italy. Frankfurter recorded foreign exchange loss related to both its ruble receivable and euro payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date? Ruble EuroA) Increase Decrease B) Decrease DecreaseC) Decrease IncreaseD) No Change DecreaseE) Increase Increase A. A aboveB. B aboveC. C aboveD. D aboveE. E above
c
Williams, Inc., a U.S. company, has a Japanese yen account receivable resulting from an export sale on March 1 to a customer in Japan. The exporter signed a forward contract on March 1 to sell yen and designated it as a cash flow hedge of a recognized receivable. The spot rate was $.0094, and the forward rate was $.0095. Which of the following did the U.S. exporter report in net income? A. Discount revenue.B. Premium revenue.C. Discount expense.D. Premium expense.E. Both a discount revenue and a premium expense
b
Larson Company, a U.S. company, has an India rupee account receivable resulting from an export sale on September 7 to a customer in India. Larson signed a forward contract on September 7 to sell rupees and designated it as a cash flow hedge of a recognized receivable. The spot rate was $.023, and the forward rate was $.021. Which of the following did the U.S. exporter report in net income? A. Discount revenue.B. Premium revenue.C. Discount expense.D. Premium expense.E. Both a discount revenue and a premium expense.
c
Primo Inc., a U.S. company, ordered parts costing 100,000 rupee from a foreign supplier on July 7 when the spot rate was $.025 per rupee. A one-month forward contract was signed on that date to purchase 100,000 rupee at a rate of $.027. The forward contract is properly designated as a fair value hedge of the 100,000 rupee firm commitment. On August 7, when the parts are received, the spot rate is $.028. At what amount should the parts inventory be carried on Primo's books? A. $2,000.B. $2,100.C. $2,500.D. $2,700.E. $2,800.
e
Lawrence Company, a U.S. company, ordered parts costing 1,000,000 Thailand bahts from a foreign supplier on July 7 when the spot rate was $.025 per baht. A one-month forward contract was signed on that date to purchase 1,000,000 bahts at a rate of $.027. The forward contract is properly designated as a fair value hedge of the 1,000,000 baht firm commitment. On August 7, when the parts are received, the spot rate is $.028. What is the amount of accounts payable that will be paid at this date? A. $20,000.B. $20,100.C. $25,000.D. $27,000.E. $28,000.
e
On April 1, Quality Corporation, a U.S. company, expects to sell merchandise to a French customer in three months, denominating the transaction in euros. On April 1, the spot rate is $1.41 per euro, and Quality enters into a three-month forward contract cash flow hedge to sell 400,000 euros at a rate of $1.36. At the end of three months, the spot rate is $1.37 per euro, and Quality delivers the merchandise, collecting 400,000 euros. What are the effects on net income from these transactions? A. $8,000 Discount Expense plus a $12,000 negative Adjustment to Net Income when the merchandise is delivered.B. $8,000 Discount Expense plus a $12,000 positive Adjustment to Net Income when the merchandise is delivered.C. $8,000 Discount Expense plus a $20,000 negative Adjustment to Net Income when the merchandise is delivered.D. $8,000 Discount Expense plus a $20,000 positive Adjustment to Net Income when the merchandise is delivered.E. $8,000 Discount Expense plus an $8,000 positive Adjustment to Net Income when the merchandise is delivered.
d
Import purchase by a U.S. company denominated in foreign currency, foreign currency of buyer appreciates.
Results in a foreign exchange loss
Export sale by a U.S. company denominated in foreign currency, foreign currency of buyer depreciates
Results in a foreign exchange loss
Import purchase by a U.S. company denominated in dollars, foreign currency of buyer appreciates.
No foreign exchange gain or loss
Export sale by a U.S. company denominated in foreign currency, foreign currency of buyer appreciates.
No foreign exchange gain or loss
Export sale by a U.S. company denominated in foreign currency, foreign currency of buyer appreciates.
Results in a foreign exchange gain
Import purchase by a U.S. company denominated in dollars, foreign currency of buyer depreciates.
No foreign exchange gain or loss
Export sale by a U.S. company denominated in dollars, foreign currency of buyer depreciates
No foreign exchange gain or loss
Import purchase by a U.S. company denominated in foreign currency, foreign currency of buyer depreciates.
Results in a foreign exchange gain