Question 1

When a cash flow hedge is appropriate,the effective portion of the gain or loss on the derivative is

Accepted Answer

A) deferred using other comprehensive income. 
B) recognized immediately at the time the agreement is made. 
C) recognized over time,amortized over the period of the agreement. 
D) recognized over time,offset by the fluctuation in the value of the hedged asset or liability. 
A) deferred using other comprehensive income. 
B) recognized immediately at the time the agreement is made. 
C) recognized over time,amortized over the period of the agreement. 
D) recognized over time,offset by the fluctuation in the value of the hedged asset or liability.

Question 2

One characteristic of a derivative is it does not require or permit net settlements.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following hedging strategies would a business most likely use?

Accepted Answer

A) An importer will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net asset position. 
B) An importer will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position. 
C) An exporter will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net liability position. 
D) An exporter will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position. 
A) An importer will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net asset position. 
B) An importer will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position. 
C) An exporter will want to hedge his foreign denominated accounts receivable and will purchase forward contracts to hedge an exposed net liability position. 
D) An exporter will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position.

Question 4

Cirtus Corporation,a U.S.corporation,placed an order for inventory from a Mexican supplier on September 18 when the spot rate was $0.0840 = 1 peso.The invoice price will be denominated in pesos.Also on September 18,they entered into a 30-day forward contract (designated as a fair value hedge of the firm commitment to purchase)to purchase 860,000 pesos at a forward rate of $0.0810.On October 18 when the inventory was received,the spot rate was $0.0890.At what amount should the inventory be carried on Cirtus' books at the time of contract?

Accepted Answer

A) $69,660 
B) $72,240 
C) $76,540 
D) $860,000 
A) $69,660 
B) $72,240 
C) $76,540 
D) $860,000

Question 5

A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using

Accepted Answer

A) Modified Cash Basis Accounting. 
B) Critical Term Hedge Analysis. 
C) Fair Value Hedge Accounting. 
D) Hedge of Net Investment in Foreign Subsidiary. 
A) Modified Cash Basis Accounting. 
B) Critical Term Hedge Analysis. 
C) Fair Value Hedge Accounting. 
D) Hedge of Net Investment in Foreign Subsidiary.

Question 6

The net gain or loss in earnings during the period for a fair-value hedge must be reported in the financial statement footnotes.

Accepted Answer

A) True 
 B)False

Question 7

A derivative contract that attempts to reduce the price risk of an existing asset is a fair-value hedge.

Accepted Answer

A) True 
 B)False

Question 8

International accounting standards differ from U.S.Generally Accepted Accounting Principles in that International standards

Accepted Answer

A) require that firm sale or purchase commitments are accounted for as fair value hedges. 
B) require that firm sale or purchase commitments are accounted for as cash flow hedges. 
C) state that firm sale or purchase commitments may not be treated as a hedged transaction. 
D) permit firm sale or purchase commitments to be accounted for as either fair value hedges or cash flow hedges. 
A) require that firm sale or purchase commitments are accounted for as fair value hedges. 
B) require that firm sale or purchase commitments are accounted for as cash flow hedges. 
C) state that firm sale or purchase commitments may not be treated as a hedged transaction. 
D) permit firm sale or purchase commitments to be accounted for as either fair value hedges or cash flow hedges.

Question 9

On November 1,2014,Portsmith Corporation,a calendar-year U.S.corporation,invested in a purely speculative contract to purchase 1 million yen on January 30,2015,from the Karoke Trading Company,a Japanese brokerage firm.Portsmith agreed to purchase 1,000,000 yen from Karoke at a fixed price of $0.0100 per yen.Karoke agreed to transmit 1,000,000 yen to Portsmith on January 30.Net settlement is not permitted.The spot rates for yen are:
   The 30-day forward rate for yen on December 31,2014 was $0.0104.
Required:
Prepare the General Journal entries that Portsmith would record on November 1,December 31,and January 30.

Accepted Answer

Portsmith'

Question 10

On May 1,2014,Listing Corporation receives inventory items from their Bulgarian supplier.At the same time,Listing signed a forward contract to purchase 75,000 Bulgarian lev in sixty days to hedge the inventory purchase at $0.738,the 60-day forward rate.Payment for the inventory will be due in sixty days in Bulgarian lev.Assume the forward contract will be settled net and this qualifies as a fair value hedge.The related exchange rates are shown below:   Assuming a present value factor of 1 for simplicity,what is the fair value of this forward contract on May 31?

Accepted Answer

A) $150 asset 
B) $150 liability 
C) $375 asset 
D) $375 liability 
A) $150 asset 
B) $150 liability 
C) $375 asset 
D) $375 liability

When a cash flow hedge is appropriate,the effective portion of the gain or loss on the derivative is

One characteristic of a derivative is it does not require or permit net settlements.

Which of the following hedging strategies would a business most likely use?

A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using

The net gain or loss in earnings during the period for a fair-value hedge must be reported in the financial statement footnotes.

A derivative contract that attempts to reduce the price risk of an existing asset is a fair-value hedge.

International accounting standards differ from U.S.Generally Accepted Accounting Principles in that International standards

Business Combinations

Stock Investments - Investor Accounting and Reporting

An Introduction to Consolidated Financial Statements

Consolidated Techniques and Procedures

Intercompany Profit Transactions - Inventories

Intercompany Profit Transactions - Plant Assets

Intercompany Profit Transactions - Bonds

Consolidations - Changes in Ownership Interests

Indirect and Mutual Holdings

Subsidiary Preferred Stock, consolidated Earnings Per Share, and Consolidated Income Taxation

Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures

Derivatives and Foreign Currency: Concepts and Common Transactions

Foreign Currency Financial Statements

Segment and Interim Financial Reporting

Partnerships - Formation,operations,and Changes in Ownership Interests

Partnership Liquidation

Corporate Liquidations and Reorganizations

An Introduction to Accounting for State and Local Governmental Units

Accounting for State and Local Governmental Units - Governmental Funds

Accounting for State and Local Governmental Units - Proprietary and Fiduciary Funds

Accounting for Not-For-Profit Organizations

Estates and Trusts

Filters

Exam 13: Accounting for Derivatives and Hedging Activities

When a cash flow hedge is appropriate,the effective portion of the gain or loss on the derivative is

One characteristic of a derivative is it does not require or permit net settlements.

Which of the following hedging strategies would a business most likely use?

A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using

The net gain or loss in earnings during the period for a fair-value hedge must be reported in the financial statement footnotes.

A derivative contract that attempts to reduce the price risk of an existing asset is a fair-value hedge.

International accounting standards differ from U.S.Generally Accepted Accounting Principles in that International standards

Business Combinations

Stock Investments - Investor Accounting and Reporting

An Introduction to Consolidated Financial Statements

Consolidated Techniques and Procedures

Intercompany Profit Transactions - Inventories

Intercompany Profit Transactions - Plant Assets

Intercompany Profit Transactions - Bonds

Consolidations - Changes in Ownership Interests

Indirect and Mutual Holdings

Subsidiary Preferred Stock, consolidated Earnings Per Share, and Consolidated Income Taxation

Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures

Derivatives and Foreign Currency: Concepts and Common Transactions

Foreign Currency Financial Statements

Segment and Interim Financial Reporting

Partnerships - Formation,operations,and Changes in Ownership Interests

Partnership Liquidation

Corporate Liquidations and Reorganizations

An Introduction to Accounting for State and Local Governmental Units

Accounting for State and Local Governmental Units - Governmental Funds

Accounting for State and Local Governmental Units - Proprietary and Fiduciary Funds

Accounting for Not-For-Profit Organizations

Estates and Trusts

Filters