Exam 15: Global Business and Accounting

Exchange rates and hedging On October 1 2011, Glenn Company accepted a shipment of beer from Germany. The purchase contract specifies payment of 3,000,000 euros is to be made on December 1, 2011. The exchange rate on October 1, 2011 was: $1 = 1.4 euros. Instructions: (a) If the exchange rate on December 1 2011 is: $1 = 1.18 Euros, what amount of gain or loss due to the exchange rate fluctuation will be recognized on the purchase? (b) On October 1, Glenn's analysts were forecasting the exchange rate to be: $1 = 1.20 Euros on December 1, 2011. Glenn can enter into a hedging contract on October 1, 2011 whereby the bank would accept $2,480,000 in exchange for 3,000,000 Euros on December 1. The bank will charge a $2,000 fee to enter into the agreement. Should Glenn enter into the hedge agreement? (c) If Glenn enters into the hedging contract, what will be the exchange gain/loss recorded on December 1, 2011?

On November 1, a French company purchased machinery from an American company for 800,000 euros when the exchange rate was $0.83. When preparing financial statements on December 31, assuming the rate for Euros was $0.88, what amount of gain or loss should the American company report?

As foreign exchange rates fall, importers based in the United States will lose and exporters will gain.

Tuliptime, Inc. sold American fashions to a Japanese company at a price of 4 million yen. On the sale date, the exchange rate was $.0100 per Japanese yen, but when Tuliptime received payment from its customer, the exchange rate was $.0103 per yen. When the foreign receivable was collected, Tuliptime:

To convert a dollar amount into a foreign currency divide the dollar amount by the exchange rate.

Differences in accounting practices among countries reflect the different sources of capital in those countries.

Gains and losses from fluctuations in exchange rates should be shown on the:

Which of the following is true about foreign trade zones?

Foreign currency transactions The following table summarizes the facts of five independent cases (labeled a through e) of American companies engaging in credit transactions with foreign corporations while the foreign exchange rate is fluctuating: Instructions: After evaluating the information about each case, fill the blank space that has been left in one of the four columns denoted by a yellow color. The content of each column and the word or words that you should enter in the blank spaces are described below: Column 1 indicates the type of credit transaction in which the American company engaged with the foreign corporations. The answer entered in this column should be either "Sales" or "Purchases." Column 2 indicates the currency in which the invoice price is stated. The answer may be either "U.S. dollars" or "Foreign currency." Column 3 indicates the direction in which the foreign currency exchange rate has moved between the date of the credit transaction and the date of settlement. The answer in this column may be either "Rising" or "Falling." Column 4 indicates the effect of the exchange rate fluctuation upon the income of the American company. The answers entered in this column are to be selected from the following: "Gain," "Loss," or "No effect."

A country whose citizens are highly group-oriented and who accept unequal power distributions between and within organizations would be considered:

In a planned economy, ownership of land and the means of production are private and markets dictate the allocation of resources and the output among segments of the economy.

Flynn Corporation purchased bicycles from a British manufacturer at a price of 45,000 British pounds on November 15, 2011with payment due in 60 days. Using the following exchange rates, what gain or loss from currency fluctuations should be recognized in 2011 and 2012, respectively? Nov. 15, 2011 $1.70 per British pound Dec) 31, 2011 $1.75 per British pound Jan) 15, 2012 $1.73 per British pound

On March 1, Laton Products (a U.S. firm) purchased manufacturing inputs from a Mexican supplier for 20,000 pesos, payable on June 1. The exchange rate for pesos on March 1 was $0.17. If the exchange rate increases to $0.19 on June 1, what amount of gain or loss would be reported by Laton related to the currency exchange?

Which of the following statements are true about globalization methods?

Assume the exchange rate for the Mexican Peso is falling relative to the U.S. dollar. An American company will incur losses from this falling exchange rate if the company is making:

Accounting practices are affected by all of the following except:

Cultural traits in the United States include high uncertainty avoidance and a long-term orientation.

Exporting transactions-journal entries Jung Farms exports wheat to Germany. In the space provided below, prepare journal entries to record the following events. Nov. 15, 2010: Sold wheat to a German restaurant chain at a price of 2 million euros, due in 90 days. The current exchange rate is $0.80 U.S. dollars per euro. (Jung uses the periodic inventory method.) Dec. 3, 2010: Jung made a year-end adjusting entry relating to the account receivable from the German restaurant chain. The exchange rate at year-end is $0.85 U.S. dollars per Euro. Feb. 15, 2011: Received a check for $1,640,000 from the InterContinental Bank in full settlement of the receivable from the German restaurant chain. The exchange rate at this date is $0.82 U.S. dollars per euro.

"Convergence" means abandoning a country's financial reporting standards and replacing them with the International financial Reporting Standard.

Importing transactions-journal entries Striking Furs imports furs from Canada. In the space provided below, prepare journal entries to record the following events. Dec. 11, 2010: Purchased furs from Capable Trappers, Ltd., a Canadian corporation, at a price of 25,000 Canadian dollars, due in 60 days. The current exchange rate is $0.85 U.S. dollars per Canadian dollar. (Striking uses the perpetual inventory method; debit the Inventory account.) Dec. 31, 2010: Striking made a year-end adjusting entry relating to the account payable to Capable Trappers. The exchange rate at year-end is $0.89 U.S. dollars per Canadian dollar. Feb. 9, 2011: Issued a check for $21,750 (U.S. dollars) to National Bank in full settlement of the liability to Capable Trappers, Ltd. The exchange rate at this date is $0.87 U.S. dollars per Canadian dollar.