Exam 12: Derivatives and Foreign Currency: Concepts and Common Transactions

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: -What is the final amount of the loan payable that Sooty repaid?

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.

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?

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

The exchange rates between the Australian dollar and the U.S.dollar were as follows: This chart shows a

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.

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

The table below provides either a direct or indirect quote for a given foreign currency unit,and the related units of that foreign currency. 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.

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 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

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: 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.

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.

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

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.

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: -What exchange gain or loss appeared on Sooty's 2011 income statement?

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: 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?

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.

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: Required: Show all related journal entries for Behd Company.

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. -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?

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