江西财经大学高级财务会计国际学院题库chapter_12

2024-05-21 来源：意榕旅游网

Advanced Accounting, 11e (Beams/Anthony/Bettinghaus/Smith)

Chapter 12 Derivatives and Foreign Currency: Concepts and Common Transactions

Multiple Choice Questions

1) On May 1, 2011, Deerfield Corporation purchased merchandise from a German firm for 78,000 euros when the spot rate for the euro was 1.48 euro per dollar. The account payable was denominated in the euro. Deerfield settled the account on August 1 when the spot rate for the euro was 1.39 euro per dollar. How much cash will Deerfield have to disburse to settle the account? A) $ 52,702.72 B) $ 56,115.11 C) $108,420.00 D) $115,440.00 Answer: B

Explanation: B) 78,000 euro/1.39 euro per dollar = $56,115.11

Objective: LO4 Difficulty: Easy

2) Cass Corporation's balance sheet at December 31, 2011 included a $48,480 account receivable from Redmun Corporation of Mexico. The account receivable was denominated as 600,000 Mexican pesos. What entry did Cass make on January 16, 2012 when the account receivable was collected and the exchange rate for the peso was $.09? A) Cash 54,000 Accounts Receivable 54,000 B) Cash 54,000 Exchange Gain 5,520 Accounts Receivable 48,480 C) Cash 48,480 Accounts Receivable 48,480 D) Cash 48,480 Exchange Loss 5,520 Accounts Receivable 54,000 Answer: B

Explanation: B) 600,000 × $0.09 = $54,000; $54,000 - $48,480 = $5,520 gain

Objective: LO5

Difficulty: Moderate

3) The exchange rates between the Australian dollar and the U.S. dollar were as follows:

Jun 1 1$AUS = $.8328US Jul 1 1$AUS = $.8356US Aug 1 1$AUS = $.9111US

This chart shows a

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

D) weakening Australian dollar which makes it more expensive for Americans to buy Australian goods. Answer: C

Objective: LO3 Difficulty: Easy

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

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

D) A government cannot set an exchange rate for their currency that is lower (strengthens their currency) than the quoted interbank market rate. Answer: B

Objective: LO3 Difficulty: Easy

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

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

Objective: LO3 Difficulty: Easy

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

On November 1, 2010, Rolleks Corporation sold merchandise to Watchem Corporation, a Swiss firm. Rolleks measured and recorded the account receivable from the sale at $107,100. Watchem paid for this account on November 30, 2010. Spot rates for Swiss francs on November 1 and November 30, respectively, were $1.05 and $1.02.

6) If the sale of the merchandise was denominated in Swiss francs, the November 30 entry to record the receipt of payment from Watchem included a A) credit to Accounts Receivable for $104,040. B) credit to Exchange Gain for $3,060. C) debit to Cash for $107,100.

D) debit to Exchange Loss for $3,060. Answer: D

Explanation: D) Underlying currency value: $107,100/1.05 dollars per franc(sf) = 102,000 sf November 30 value of receivable at 1.02 dollars per franc(sf) = $104,040 Receivable recorded at $107,100 107,100 Decrease in value of receivable (loss) = (3,060) Objective: LO5

Difficulty: Moderate

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

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

D) debit to Exchange Loss for $3,060. Answer: C

Explanation: C) If a sale is denominated in dollars, and Rolleks recorded the sale in dollars at $107,100, then there will be no gain or loss on Rolleks' books. The risk of gain or loss now lies with the Swiss company, Watchem.

Objective: LO5

Difficulty: Moderate

8) On December 5, 2010, Unca Corporation, a U.S. firm, bought inventory items from Skagerrak

Corporation of Norway for 1,000,000 Norwegian kroner when the spot rate for kroner was $0.166. The purchase was denominated in kroner. At Unca's fiscal year end, December 31, 2010, the spot rate was $0.171. On January 4, 2011, Unca purchased 1,000,000 kroner for $167,500 and paid the invoice. How much gain or (loss) did Unca report in its 2010 and 2011 income statements, respectively? A) $(5,000) and $1,500 B) $0 and ($1,500) C) ($5,000) and $3,500 D) $0 and ($3,500) Answer: C

Explanation: C)

Accounts payable, Dec 05, 2010 1,000,000 × $0.166 = $166,000 Accounts payable, Dec 31, 2010 1,000,000 × $0.171 = $171,000 Loss = $5,000

Accounts payable, Dec 31, 2010 = $171,000 Accounts payable, at settlement = $167,500 Gain = $3,500

Objective: LO5

Difficulty: Moderate

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

On October 4, 2010, Sooty Corporation borrowed 250,000 British pounds from a London bank, evidenced by an interest-bearing note payable due in one year. The note was payable in pounds. Exchange rates for pounds were:

October 4, 2010 $1.59 December 31, 2010 $1.55 October 4, 2011 $1.61

9) What exchange gain or loss appeared on Sooty's 2010 income statement? A) a loss of $10,000 B) a loss of $15,000 C) a gain of $10,000 D) a gain of $15,000 Answer: C

Explanation: C) 250,000 pounds × ($1.59 - $1.55) = $10,000 gain

Objective: LO5

Difficulty: Moderate

10) What is the final amount of the loan payable that Sooty repaid? A) $250,000 B) $287,500 C) $397,500 D) $402,500 Answer: D

Explanation: D) 250,000 pounds × $1.61 = $402,500

Objective: LO5

Difficulty: Moderate

11) What exchange gain or loss appeared on Sooty's 2011 income statement? A) a loss of $15,000 B) a loss of $5,000 C) a gain of $15,000 D) a gain of $5,000 Answer: A

Explanation: A) 250,000 pounds × ($1.61 - $1.55) = $15,000 loss

Objective: LO5

Difficulty: Moderate

12) If a U.S. company is preparing a journal entry for a recent purchase, foreign-currency-denominated purchases must be measured in ________ at the purchase date using the foreign currency ________ rate on the purchase date. A) foreign currency; spot B) foreign currency; future C) U.S. dollars; forward D) U.S. dollars; spot Answer: D

Objective: LO5

Difficulty: Moderate

13) When the billing for a U.S. company's sale to a company in a foreign country is denominated in U.S. dollars, ________ is required when preparing journal entries for the sale. A) translation to a foreign currency B) conversion to a foreign currency C) translation to U.S. dollars D) no translation Answer: D

Objective: LO5

Difficulty: Moderate

14) Which of the following is a true statement regarding the recording of a transaction which involves foreign currency?

A) A transaction is always settled in the currency in which it is denominated. B) A transaction is always measured in the currency in which it is denominated. C) A transaction is always settled in the currency in which it is measured.

D) A transaction is always recorded in the currency in which it is denominated. Answer: A

Objective: LO4 Difficulty: Easy

15) Gains or losses on foreign currency transactions are recorded before the related receivable or payable is settled when

A) the government cannot set an exchange rate for the foreign currency. B) the foreign currency is unknown.

C) the fiscal year ends after the settlement of the receivable or payable. D) the fiscal year ends before the settlement of the receivable or payable. Answer: D

Objective: LO5 Difficulty: Easy

16) Which of the following statements is true regarding forward contracts, futures contracts, options and swaps?

A) A forward contract can be purchased on the open market and is recorded at its historical cost, then adjusted for changes in the market.

B) A futures contract is negotiated between two parties who are betting in the opposite direction on the movement of the underlying price.

C) An option is a contract requiring the holder to either \"put\" or \"call\" an underlying asset at a specified point in time.

D) A swap is a contract between two parties to exchange an ongoing stream of cash flows. Answer: D

Objective: LO2 Difficulty: Easy

17) A direct quote for the U.S. dollar is given at $1.45 per 1 foreign currency unit (fcu). The respective indirect quote for the U.S. dollar would be reported as A) 1.45 fcu = $1.00. B) 1.45 fcu = $.6897. C) .6897 fcu = $1.00. D) 1.00 fcu = $1.45. Answer: C

Objective: LO3 Difficulty: Easy

18) On November 14, 2011, Scuby Company (a U.S. corporation) enters into a transaction which is denominated in the Canadian dollar. Assume the exchange rate at November 14 is $1.03, and at the December 31 year-end reporting date, the exchange rate is $1.07. On January 27, 2012, when the transaction is settled, the exchange rate is $1.05. At the date of settlement, which of the following is correct?

A) The historical rate = $1.05, and the spot rate at which it is settled is the same as the current rate at $1.07.

B) The historical rate = $1.03, and the spot rate at which it is settled is the same as the current rate at $1.06. C) The historical rate = $1.05, the current rate for reporting at December 31, 2011 is $1.07, and the spot rate at which it is settled is $1.03.

D) The historical rate = $1.03, the current rate for reporting at December 31, 2011 is $1.07, and the spot rate at which it is settled is $1.05. Answer: D

Objective: LO3, 4 Difficulty: Easy

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

A) the U.S. company has measured the transaction in US dollars. B) the U.S. company has denominated the transaction in US dollars.

C) the foreign company has measured the transaction in their own currency. D) the foreign company has denominated the transaction in their own currency. Answer: B

Objective: LO4 Difficulty: Easy

20) Ulysses Company purchases goods from China amounting to 372,372 Yuan (the transaction is denominated in the Chinese Yuan). Assume the Yuan is trading at $0.154 at the date the goods are

ordered, and the Yuan is trading at $0.155 at the date the goods are received, and when the invoice is paid a month later, the Yuan is trading at $.156. Assume all three dates are in the same fiscal year. Which of the following is true?

A) The entry to record the payment will include a gain of $744.74. B) The entry to record the payment will include a gain of $372.37.

C) The entry to record the purchase will include a credit to Accounts Payable of $57,345.29. D) The entry to record the purchase will include a credit to Accounts Payable of $57,717.66. Answer: D

Objective: LO5

Difficulty: Moderate

Exercises

1) On September 1, 2011, Bylin Company purchased merchandise from Himeji Company of Japan for 20,000,000 yen payable on October 1, 2011. The spot rate for yen was $0.0079 on September 1 and the spot rate was $0.0077 on October 1. The purchase was paid on October 1, 2011.

Required: 1. Did the U.S. dollar strengthen or weaken from September to October and what are the implications for Bylin's business?

2. What journal entry did Bylin record on September 1, 2011?

3. What journal entry did Bylin record on October 1, 2011? Answer: Requirement 1

The U.S. dollar strengthened which makes the purchase of goods on time cheaper from Japan.

Requirement 2 and 3

Date Account Name Debit Credit 9/01/11 Merchandise inventory 158,000 Accounts Payable (yen) 158,000

10/01/11 Cash (yen) 154,000 Cash 154,000

10/01/11 Accounts Payable (yen) 158,000 Exchange gain 4,000 Cash (yen) 154,000

Objective: LO5

Difficulty: Moderate

2) On October 15, 2011, Napole Corporation, a French company, ordered merchandise listed on the internet for 20,000 Euros from Adams Corporation, a U.S. corporation. The euro rate was $1.20 (U.S.

dollars) on October 15. On November 15, 2011 Adams shipped the goods and billed Napole the purchase price of 20,000 Euros when the euro rate was $1.30. Napole paid the bill on December 10, 2011, and Adams immediately exchanged the 20,000 Euros for US dollars when the Euro rate was $1.28 on December 10, 2011.

Required: Compute the foreign currency gain or loss on the December 31, 2011 financial statements of Adams and show the related journal entries. Answer:

A $400 foreign exchange loss Adams' General Journal

Date Account Name Debit Credit 10/15/11 No entry

11/15/11 Accounts receivable (euro) 26,000 Sales (20,000 euro × $1.30) 26,000

12/10/11 Cash (euro) (20,000 euro × $1.28) 25,600 Exchange loss 400 Accounts receivable (euro) 26,000

12/10/11 Cash 25,600 Cash (euro) 25,600

Objective: LO5

Difficulty: Moderate

3) On November 1, 2010, the Yankee Corporation, a US corporation, purchased and received an extruding machine from Wales Corporation, a UK company. The purchase price was $10,000(U.S. dollars) and

Yankee agreed to pay in pounds on February 1, 2011. Both corporations are on a calendar year accounting period. Assume that the spot rates for the British pound on November 1, 2010, December 31, 2010, and February 1, 2011, are $1.60, $1.62, and $1.66, respectively.

Required: Record the November 1, December 31, and February 1 transactions in the General Journals of Yankee Corporation and Wales Corporation. If no entry is required on a particular date, indicate \"No entry\" in the General Journal. Answer: Yankee's General Journal

Date Account Name Debit Credit 11/01/10 Machinery 10,000 Accounts Payable (pounds) 10,000

12/31/10 Exchange Loss 125 Accounts Payable (pounds) 125 (£6,250 × $1.62 = $10,125) ($10,000 - $10,125 = $125 loss)

02/01/11 Exchange Loss 250 Accounts Payable (pounds) 250 (£6,250 × $1.66 = $10,375) ($10,125 - $10,375 = $250 loss)

02/01/11 Cash (pounds) 10,375 Cash 10,375

02/01/11 Accounts Payable (pounds) 10,375 Cash (pounds) 10,375

Wales' General Journal

11/01/10 Accounts Receivable 6,250 Sales Revenue 6,250

12/31/10 No entry

02/01/11 Cash (pounds) 6,250 Accounts Receivable 6,250

Objective: LO5

Difficulty: Moderate

4) Jefferson Company entered into a forward contract with Washington Company on October 1, 2011, under which Jefferson agreed to buy (and Washington agreed to sell) 10,000 tons of coal at $80.00 per ton in 90 days. On October 1, 2011, the price of coal is $82.00 per ton. On December 29, 2011, the price of coal is $85.00 per ton. The contract allows for net settlement.

Required:

Determine the net settlement on the forward contract.

Answer: Washington will pay Jefferson $50,000 in net settlement.

If the parties fulfilled the contract, Washington would have to acquire 10,000 tons of coal at $85.00 per ton, or $850,000, would then in turn sell the coal to Jefferson for $800,000 (10,000 tons × $80/ton), and thus would have lost $50,000 on the contract. Because Jefferson will purchase coal from a third-party at $85.00 per ton, they will use the $800,000 of their own funds that they would have used to purchase the coal from Washington under the contract, plus the $50,000 that they received from Washington in net settlement, and thus they are made whole by the net settlement.

Objective: LO2

Difficulty: Moderate

5) On April 1, 2012, Button Industries enters into an agreement with Bows Incorporated to lock in the price of cotton. Button agrees to purchase (and Bows agrees to sell) 100,000 pounds of cotton at $1.19 per pound, six months from the date of agreement. On October 1, 2012, the price of cotton is $1.17 per pound. The contract allows for net settlement.

Required:

Determine the net settlement on the forward contract. Answer: Button will pay Bows $2,000 in net settlement.

If the parties fulfilled the contract, Bows would have to acquire 100,000 pounds of cotton at $1.17 per pound, or $117,000, and would then in turn sell the cotton to Button for $119,000 (100,000 × $1.19/pound), and thus would have gained $2,000 on the contract. Because Button would have to purchase cotton from a third-party at $1.17 per pound, they will pay $117,000 to the third-party, plus the $2,000 to Bows, so they will have paid out a total of $119,000 for 100,000 pounds, and thus locked in the price of $1.19 per pound.

Objective: LO2

Difficulty: Moderate

6) Crabby Industries, a U.S. corporation, purchased inventory from a company in Sweden on November 18, 2011 when the Swedish krona was trading at 1 krona = $0.161. The transaction was for 600,000 krona, and was to be paid in krona in 90 days. Crabby closed their books at December 31 for financial reporting purposes when the krona was trading at $0.167. On February 16, 2012, Crabby paid the invoice when the krona was trading at $0.156.

Required: Show the journal entries recorded by Crabby on November 18, 2011, December 31, 2011, and February 16, 2012.

Answer:

Crabby's General Journal

Date Account Name Debit Credit 11/18/11 Inventory 96,600 Accounts Payable (krona) 96,600

12/31/11 Exchange Loss 3,600 Accounts Payable (krona) 3,600 (600,000 krona × ($.167 - $.161))

2/16/12 Cash (krona) 93,600 Cash 93,600

2/16/12 Accounts Payable (krona) 100,200 Exchange Gain 6,600 Cash (krona) 93,600 (Pay 600,000 krona × $0.156)

Objective: LO5

Difficulty: Moderate

7) Tank Corporation, a U.S. manufacturer, has a June 30 fiscal year end. Tank sold goods to their customer in Columbia on May 27, 2011 for 18,000,000 Columbian pesos. The customer agreed to pay pesos in 60 days. When the customer wired the funds to Tank on July 26, Tank held them in their bank account until July 31 before selling them and converting them to U.S. dollars. The following exchange rates apply:

May 27 $0.00055 June 30 $0.00052 July 26 $0.00058 July 31 $0.00056

Required:

Record the journal entries related to the dates listed above. If no entry is required, state \"no entry.\" Answer:

Tank's General Journal

Date Account Name Debit Credit 05/27/11 Accounts Receivable (pesos) 9,900 Sales Revenue 9,900

06/30/11 Exchange Loss 540 Accounts Receivable (pesos) 540 (18,000,000 pesos × ($.00055 - $.00052))

07/26/11 Cash (pesos) 10,440 Exchange Gain 1,080 Accounts Receivable (pesos) 9,360 (18,000,000 pesos × $0.00058)

07/31/11 Cash 10,080 Exchange Loss 360 Cash (pesos) 10,440 (18,000,000 pesos × $0.00056)

Objective: LO5

Difficulty: Moderate

8) A review of Ace Industries, a U.S. corporation, shows the following balances in accounts receivable and accounts payable detail at September 30, 2011, their fiscal year end.

ACCOUNTS RECEIVABLE

Receivables denominated in U.S. dollar $426,000 Receivable denominated in 40,000 Australian dollar 43,000 Receivable denominated in 70,000 Canadian dollar 71,750 $ 540,750

ACCOUNTS PAYABLE

Payables denominated in U.S. dollar $ 107,000 Payable denominated in 50,000 Canadian dollar 51,250 Payable denominated in 200,000 Hong Kong dollar 26,500 $ 184,750

As Ace prepared to close their books, they noted that the September 30 exchange rates for the Australian dollar, Canadian dollar and Hong Kong dollar were $1.0366, $1.0301 and $0.1284, respectively.

Required:

Determine the exchange gain or loss to be included in the 2011 financial statements, and the amount of Accounts Receivable and Accounts Payable that will be included on the September 30, 2011 balance sheet. Answer: Current Exchange ACCOUNTS RECEIVABLE Pre-Close Exchange Gain/(Loss) U.S. dollar $ 426,000 $ 426,000 $-0- 40,000 Australian dollar 43,000 41,464 (1,536) 70,000 Canadian dollar 71,750 72,107 357 $ 540,750 $539,571 $(1,179)

ACCOUNTS PAYABLE U.S. dollar $ 107,000 $ 107,000 $-0- 50,000 Canadian dollar 51,250 51,505 (255) 200,000 Hong Kong dollar 26,500 25,680 820 $ 184,750 $ 184,185 $ 565

Accounts Receivable = $539,571 Accounts Payable = $184,185

Exchange Gain/(Loss) = ($1,179) + 565 = ($614)

Objective: LO5

Difficulty: Moderate

9) Behd Company, a U.S. firm, sold some of its inventory to Edinburgo Company, a company based in Scotland, on November 27, 2011, when the local currency unit (the pound Sterling, \"GBP\") was trading at $1.64 : 1 GBP. The sales agreement called for Edinburgo to pay 140,000 GBP on January 26, 2012. Additional exchange rates are shown below: December 31, 2011 $1.7125 January 26, 2012 $1.7220

Required:

Show all related journal entries for Behd Company. Answer:

Behd's General Journal

Date Account Name Debit Credit 11/27/11 Accounts Receivable (GBP) 229,600 Sales Revenue 229,600

12/31/11 Accounts Receivable (GBP) 10,150 Exchange Gain 10,150 (140,000 GBP × ($1.7125 - $1.64))

1/26/12 Cash (GBP) 241,080 Exchange Gain 1,330 Accounts Receivable (GBP) 239,750 (140,000 GBP × $1.722)

Objective: LO5

Difficulty: Moderate

10) Johnson Corporation (a U.S. company) began operations on December 1, 2010, when the owner

contributed $100,000 of his own money to establish the business. Johnson then had the following import and export transactions with unaffiliated Mexican companies:

December 12, 2011 Bought inventory for 150,000 pesos on account. Invoice denominated in pesos.

December 15, 2011 Sold 60% of inventory acquired on 12/12/11 for 120,000 pesos on account. Invoice denominated in pesos.

January 1, 2012 Acquired and paid the 150,000 pesos owed to the Mexican supplier

January 15, 2012 Collected the 120,000 pesos from the Mexican customer and immediately converted them into U.S. dollars

The following exchange rates apply: Date Rate December 12 $.11 = 1 peso December 15 $.12 = 1 peso December 31 $.13 = 1 peso January 1 $.14 = 1 peso January 15 $.15 = 1 peso

Required: 1. What were Sales in the income statement for the year ended December 31, 2011? 2. What was the COGS associated with these sales?

3. What is the Accounts Payable balance in the balance sheet at December 31, 2011? 4. What is the Inventory balance in the balance sheet at December 31, 2011? Answer:

1. Sales = December 15 sale of 120,000 pesos at $.12 / peso = $14,400

2. COGS = 60% of inventory balance purchased 12/12/11 = 150,000 pesos × $.11 = $16,500 × 60% = $9,900

3. Accounts Payable balance = 150,000 pesos × $.13 = $19,500 4. Inventory balance = 150,000 pesos x $.11 = $16,500 × 40% remaining after sale = $6,600

Objective: LO5 Difficulty: Difficult

11) Piel Corporation (a U.S. company) began operations on January 1, 2011, when common stock was issued for $250,000. In the first two months of operations, Piel had the following transactions:

January 15, 2011 Bought inventory for 100,000 Mexican pesos on account

January 26, 2011 Sold 70% of inventory acquired on 1/15/11 for 44,000 Saudi riyals on account

January 27, 2011 Paid $1,000 in other operating expenses

February 2, 2011 Sold additional inventory that cost $1,000 for $3,000 cash to a U.S. company.

February 15, 2011 Acquired and paid the 100,000 pesos owed to the Mexican supplier

February 21, 2011 Paid $1,500 in other operating expenses

February 28, 2011 Collected the 44,000 riyals from the Saudi customer and immediately converted them into U.S. dollars

The following exchange rates apply: Date Rate Rate January 15 $.11 = 1 peso $.23 = 1 riyal January 26 $.12 = 1 peso $.24 = 1 riyal January 31 $.13 = 1 peso $.25 = 1 riyal February 15 $.14 = 1 peso $.26 = 1 riyal February 28 $.15 = 1 peso $.27 = 1 riyal

Required:

Complete the summary income statement and balance sheet for the month ended January 31, 2011 and February 28, 2011, assuming there were no other transactions. January 31 February 28 INCOME STATEMENT Sales COGS Gross Margin Other Operating Expenses Exchange Gain / (Loss) Net Income BALANCE SHEET Cash Accounts Receivable Inventory Total Assets Accounts Payable Common Stock Retained Earnings Total Liab and Equity Answer: January 31 February 28 INCOME STATEMENT Sales 10,560 3,000 COGS (7,700) (1,000) Gross Margin 2,860 2,000 Other Operating Expenses (1,000) (1,500) Exchange Gain / (Loss) (1,560) (120) Net Income 300 380 BALANCE SHEET Cash 249,000 248,380 Accounts Receivable 11,000 -0- Inventory 3,300 2,300 Total Assets 263,300 250,680 Accounts Payable 13,000 -0- Common Stock 250,000 250,000 Retained Earnings 300 680 Total Liab and Equity 263,300 250,680 Objective: LO5 Difficulty: Difficult

12) Lincoln Corporation, a U.S. manufacturer, both imports needed materials and exports finished

products. Their receivables and payables are listed below, prior to year-end adjustments or preparation of the closing entries. Foreign Rate at Per Books Current Currency Date of in U.S. Rate at Units Transaction Dollars 12/31/11 ACCOUNTS RECEIVABLE Japanese yen 14,678,000 $0.0109007 160,000 $0.0120 Euros 50,000 1.2372 61,860 1.4235 Hungarian forint 50,000,000 0.0044 220,000 0.0053 TOTAL 441,860 ACCOUNTS PAYABLE Euros 50,000 1.2378 61,890 $1.4235 Mexican pesos 1,250,000 0.0799 99,875 0.0845 Indian rupee 4,000,000 0.0216 86,400 0.0223 TOTAL 248,165 Required:

Determine the amount at which receivables and payables should be reported on December 31, 2011, and the net exchange gain or loss that would be reported as a result of year-end adjustments. Answer: Foreign Per Books Current Adjusted Exchange Currency in U.S. Rate at Balance at Gain / Units Dollars 12/31/11 12/31/11 (Loss) ACCOUNTS RECEIVABLE Japanese yen 14,678,000 160,000 $0.0120 176,136 16,136 Euros 50,000 61,860 1.4235 71,175 9,315 Hungarian forint 50,000,000 220,000 0.0053 265,000 45,000 TOTAL 441,860 512,311 70,451 ACCOUNTS PAYABLE Euros 50,000 61,890 $1.4235 71,175 (9,285) Mexican pesos 1,250,000 99,875 0.0845 105,625 (5,750) Indian rupee 4,000,000 86,400 0.0223 89,200 (2,800) TOTAL 248,165 266,000 (17,835) The net gain that would be shown as a result of the adjustment is $52,616 ($70,451 - $17,835).

Objective: LO5

Difficulty: Moderate

13) Slade Corporation, a U.S. company, purchased materials on account from a manufacturer in Mexico on June 15. The invoice was denominated in the shipper's currency for 480,000 pesos. The goods were paid for on July 18. Slade closes their fiscal year on June 30, and used the following indirect quotes to measure the amounts related to the transactions.

June 15 $1.00 = 12.50 pesos June 30 $1.00 = 12.80 pesos July 18 $1.00 = 12.00 pesos

Required:

Show all related journal entries for Slade Company. Answer:

Slade's General Journal

Date Account Name Debit Credit 06/15/11 Material Inventory 38,400 Accounts Payable (peso) 38,400

06/30/11 Accounts Payable (peso) 900 Exchange Gain 900 (adj. A/P to 480,000 peso/ $12.80)

07/18/11 Cash (peso) 40,000 Cash 40,000

07/18/11 Accounts Payable (peso) 37,500 Exchange Loss 2,500 Cash (peso) 40,000 (480,000 peso / $12.00)

Objective: LO5

Difficulty: Moderate

14) The table below provides either a direct or indirect quote for a given foreign currency unit, and the related units of that foreign currency. Quote Foreign Currency Units U.S. Dollars 1 fcu : $0.0065 40,000 fcu $1 : .0098 fcu 980 fcu 1 fcu : $0.0796 80,000 fcu $1 : .0688 fcu 55,040 fcu 1 fcu : $0.3597 110,000 fcu $1 : .8443 fcu 25,329 fcu 1 fcu : $1.68 50,000 fcu $1 : 1.64 fcu 29,520 fcu 1 fcu : $12.67 5,000 fcu $1 : 184.66 fcu 738,640 fcu 1 fcu : $166.79 700 fcu Required: Complete the table, indicating the amount of U.S. Dollars that is the equivalent of the foreign currency shown, based on the direct or indirect quote provided. Answer: Quote Foreign Currency Units U.S. Dollars 1 fcu : $0.0065 40,000 fcu $260 $1 : .0098 fcu 980 fcu 100,000 1 fcu : $0.0796 80,000 fcu 6,368 $1 : .0688 fcu 55,040 fcu 800,000 1 fcu : $0.3597 110,000 fcu 39,567 $1 : .8443 fcu 25,329 fcu 30,000 1 fcu : $1.68 50,000 fcu 84,000 $1 : 1.64 fcu 29,520 fcu 18,000 1 fcu : $12.67 5,000 fcu 63,350 $1 : 184.66 fcu 738,640 fcu 4,000 1 fcu : $166.79 700 fcu 116,753 Objective: LO3 Difficulty: Easy

15) In September of 2011, Gunny Corporation anticipates that the price of heating oil will increase soon, and wishes to lock in a firm price for the winter months. They enter into a forward contract with Selton Industries to buy 100,000 barrels of oil at $160 per barrel in December 2011. Selton's cost of production of the heating oil is $120 per barrel.

Required:

Determine the economic impact of the transaction to Selton (the seller of the heating oil) at the market price levels indicated in the table below, with and without the hedge. Unhedged Economic Gain Economic Market Price Forward Price Market Gain / / (Loss) on Income with per Barrel per Bushel (Loss) Forward Hedge $180 170 160 150 140 Answer: Unhedged Economic Gain Economic Market Price Forward Price Market Gain / / (Loss) on Income with per Barrel per Bushel (Loss) Forward Hedge $180 $160 $6,000,000 (2,000,000) 4,000,000 170 160 5,000,000 (1,000,000) 4,000,000 160 160 4,000,000 0 4,000,000 150 160 3,000,000 1,000,000 4,000,000 140 160 2,000,000 2,000,000 4,000,000 Objective: LO2

Difficulty: Moderate

16) On November 4, 2011, the Oak Corporation, a U.S. corporation, purchased components for an

assembly machine from Maple Industries, a Canadian Company, which were put into Parts Inventory. The purchase price was 80,000 Canadian dollars and Oak agreed to pay in Canadian dollars in 90 days. Both corporations are on a calendar year accounting period. Assume that the spot rates for the Canadian dollar on November 4, 2011, December 31, 2011, and February 2, 2012, are $0.9985, $1.0191, and $1.0064, respectively.

Required: Record the November 4, December 31, and February 2 transactions in the General Journals of Oak

Corporation and Maple Industries. If no entry is required on a particular date, indicate \"No entry\" in the General Journal. Answer:

Oak's General Journal

Date Account Name Debit Credit 11/04/11 Parts Inventory 79,880 Accounts Payable (Can $) 79,880

12/31/11 Exchange Loss 1,648 Accounts Payable (Can $) 1,648 (Can $80,000 × $1.0191 = $81,528) ($79,880 - $81,528 = $1,648 loss)

02/02/12 Accounts Payable (Can $) 1,016 Exchange Gain 1,016 (Can $80,000 × $1.0064 = $80,512) ($81,528 - $80,512 = $1,016 gain)

02/02/12 Cash (Can $) 80,512 Cash 80,512

02/02/12 Accounts Payable (Can $) 80,512 Cash (Can $) 80,512

Maple's General Journal

11/04/11 Accounts Receivable 80,000 Sales Revenue 80,000

12/31/11 No entry

02/02/12 Cash (Can $) 80,000 Accounts Receivable 80,000

Objective: LO5

Difficulty: Moderate

17) Blue Corporation, a U.S. manufacturer, sold goods to their customer in Hungary on December 12, 2011 for 6,000,000 Hungarian forints. The customer agreed to pay in Hungarian forints in 30 days. When the customer wired the foreign currency to Blue on January 11, 2012, Blue held them in their bank

account until January 15 before selling them and converting them to U.S. dollars. The following exchange rates apply:

Dec 12, 2011 $0.0055 Dec 31, 2011 $0.0049 Jan 11, 2012 $0.0063 Jan 15, 2012 $0.0059

Required:

Record the journal entries that Blue would need related to the dates listed above. If no entry is required, state \"no entry.\" Answer:

Blue's General Journal Date Account Name Debit Credit 12/12/11 Accounts Receivable (forint) 33,000 Sales Revenue 33,000

12/31/11 Exchange Loss 3,600 Accounts Receivable (forint) 3,600 (6,000,000 forints × ($.0055 - $.0049))

01/11/12 Cash (forint) 37,800 Exchange Gain 8,400 Accounts Receivable (forint) 29,400 (6,000,000 forints × $0.0063)

01/15/12 Cash 35,400 Exchange Loss 2,400 Cash (forint) 37,800 (6,000,000 forints × $0.0059)

Objective: LO5

Difficulty: Moderate

18) Plymouth Corporation (a U.S. company) began operations on September 1, 2011, when the owner borrowed $250,000 to establish the business. Plymouth then had the following import and export transactions with unaffiliated Chinese companies:

September 6, 2011 Bought material inventory for 100,000 yuan on account. Invoice denominated in yuan.

September 18, 2011 Sold 80% of inventory acquired on 9/6/11 for 110,000 yuan on account. Invoice denominated in yuan.

October 5, 2011 Acquired and paid the 100,000 yuan owed to the Chinese supplier

October 18, 2011 Collected the 110,000 yuan from the Chinese customer and immediately converted them into U.S. dollars

The following exchange rates apply: Date Rate September 6 $0.1544 = 1 yuan September 18 $0.1607 = 1 yuan September 30 $0.1591 = 1 yuan October 5 $0.1578 = 1 yuan October 18 $0.1593 = 1 yuan

Required: 1. What were Sales in the September month-end income statement? 2. What was the COGS associated with these sales?

3. What is the Accounts Receivable balance in the balance sheet at September 30, 2011? 4. What is the Inventory balance in the balance sheet at September 30, 2011?

5. What is the Exchange gain or loss that will be reported for the month of September? Answer:

1. Sales = September 18 sale of 110,000 yuan at $.1607 / yuan = $17,677 2. COGS = 80% of inventory balance purchased 9/6/11 = 100,000 yuan × $.1544 = $15,440 × 80% = $12,352

3. Accounts Receivable balance = 110,000 yuan × $.1591 = $17,501 4. Inventory balance = 100,000 yuan × $.1544 = $15,440 × 20% remaining after sale = $3,088 5. Exchange Gain / (Loss) in September = A/R = 110,000 yuan × ($.1591 - $.1607) = ($176) Loss A/P = 100,000 yuan × ($.1591 - $.1544) = ($470) Loss $176 Loss + 470 Loss = ($646) Net Loss in September

Objective: LO5 Difficulty: Difficult

19) Charin Corporation, a U.S. corporation, imports and exports small electronics. On December 1, 2011, Charin purchased components from an Egyptian manufacturer amounting to 500,000 Egyptian pounds. The purchase is payable in Egyptian pounds. At December 30, Charin wanted to take advantage of

favorable exchange rates, but did not have the full amount required to pay off the entire amount. Charin wired the funds to pay off half of the balance owed, and expected to pay the remaining balance on January 3, 2012. Charin paid the remaining balance on January 3, 2012.

The respective exchange rates were as follows: December 1, 2011 1 pound = $.170 December 30, 2011 1 pound = $.165 December 31, 2011 1 pound = $.175 January 3, 2012 1 pound = $.180

Required:

Document the journal entries related to these transactions for the four dates shown. If no entry is required, record \"no entry.\"

Answer: Charin's General Journal

Date Account Name Debit Credit 12/1/11 Inventory 85,000 Accounts Payable (pound) 85,000

12/30/11 Cash (pound) 41,250 Cash 41,250

12/30/11 Accounts Payable (pound) 42,500 Exchange Gain 1,250 Cash (pound) 41,250 (250,000 pounds × ($.165 - $.170))

12/31/11 Exchange Loss 1,250 Accounts Payable (pound) 1,250 (250,000 pounds × ($.175 - $.17))

01/3/12 Cash (pound) 45,000 Cash 45,000

01/3/12 Accounts Payable (pound) 43,750 Exchange Loss 1,250 Cash (pound) 45,000 (250,000 pounds × $0.180)

Objective: LO5 Difficulty: Difficult

20) Meric Corporation (a U.S. company) began operations on January 1, 2011, when the owner borrowed $150,000 to start the company. In the first month of operations, Meric had the following transactions:

January 3, 2011 Bought inventory for 100,000 Brazilian real on account. Must be paid with Brazilian

real.

January 8, 2011 Sold 60% of inventory acquired on 1/3/11 for 32,000 British pounds on account. Invoice denominated in British pounds.

January 10, 2011 Paid $3,000 in other operating expenses

January 23, 2011 Acquired and paid half of the Brazilian real owed to the Brazilian supplier

January 28, 2011 Collected half of the 32,000 pounds from the customer in Great Britain and immediately converted them into U.S. dollars

The following exchange rates apply: Date Rate Rate January 3 $.6260 = 1 real $1.5950 = 1 pound January 8 $.6230 = 1 real $1.5760 = 1 pound January 10 $.6210 = 1 real $1.5880 = 1 pound January 23 $.6250 = 1 real $1.5610 = 1 pound January 28 $.6330 = 1 real $1.5570 = 1 pound January 31 $.6180 = 1 real $1.5720 = 1 pound

Required: Complete the summary income statement and balance sheet for the month ended January 31, 2011 assuming there were no other transactions. January 31 INCOME STATEMENT Sales COGS Gross Margin Other Operating Expenses Exchange Gain / (Loss) Net Income BALANCE SHEET Cash Accounts Receivable Inventory Total Assets Accounts Payable Debt Retained Earnings Total Liab and Equity 27

Answer: INCOME STATEMENT Sales COGS Gross Margin Other Operating Expenses Exchange Gain / (Loss) Net Income BALANCE SHEET Cash Accounts Receivable Inventory Total Assets Accounts Payable Debt Retained Earnings Total Liab and Equity Objective: LO5 Difficulty: Difficult

January 31 50,432 (37,560) 12,872 (3,000) 82 9,954 140,662 25,152 25,040 190,854 30,900 150,000 9,954 190,854 28

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江西财经大学高级财务会计国际学院题库chapter_12