Exam 15: Global Business and Accounting

Samson Corporation buys a foreign currency future contract as a hedging strategy to protect against possible losses from fluctuations in a particular foreign exchange.This strategy suggests that Samson Corporation has:

Making accurate estimates of costs is a challenge for global companies.

Accounting terminology Listed below are nine technical accounting terms introduced in this chapter: Each of the following statements may (or may not)describe one of these technical terms.In the space provided below each statement,indicate the accounting term described,or answer "None" if the statement does not correctly describe any of the terms. ________ (a)The strategy of creating offsetting positions so that losses from currency fluctuations will be offset by gains resulting from the same fluctuations. ________ (b)The price of foreign currency,stated in terms of the domestic currency. ________ (c)An item likely to appear in the income statements of American-based importers when foreign exchange rates are rising. ________ (d)The organization responsible for developing uniform worldwide accounting standards. ________ (e)Payments made to foreign officials to expedite paperwork. ________ (f)The process of restating an amount of foreign currency in terms of the equivalent number of U.S.dollars. ________ (g)An item likely to appear in the income statements of American-based exporters when foreign exchange rates are falling.

Exporting transactions-journal entries Jung Farms exports wheat to Germany.In the space provided below,prepare journal entries to record the following events. Nov.15,2017: 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.31,2017: 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.15,2018: 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.

Exchange rates and hedging On October 1 2018,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 1,2018.The exchange rate on October 1,2018 was: $1 = 1.4 euros. Instructions: (a)If the exchange rate on December 1 2018 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 1,2018.Glenn can enter into a hedging contract on October 1,2018 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 1,2018? (Do not round your intermediate computations,but rather round the final answers to nearest whole dollar. )

Listed below are several terms and statements with missing expressions.Fill in the blanks with the appropriate term. (1)To convert a foreign currency to an equivalent dollar amount,________ the foreign currency by the foreign exchange rate. (2)To convert a dollar amount into an equivalent amount of foreign currency,________ the dollar amount by the exchange rate. (3)The ________ prohibits companies engaged in global activities from bribing officials of foreign countries. (4)Goods imported into ________ are duty free. (5)________ minimizes or eliminates the risk of loss associated with foreign currency fluctuations. (6)In a ________,ownership of land and the means of production are privately held. (7)In a ________,the government allocates resources and determines output among various segments of the economy. (8)The process of restating an amount of foreign currency in terms of the equivalent number of dollars is called ________ the foreign currency. (9)A currency is described as ________ when its exchange rate is rising relative to other currencies. (10)A currency is described as ________ when its exchange rate is falling in relation to other currencies.

Of the following globalization strategies,which would be least demanding in terms of the quantity and variety of accounting information required?

"Adoption" means abandoning a country's financial reporting standards and replacing them with:

[The following information applies to the questions displayed below.] In a recent financial journal,the exchange rate between the dollar and the British pound was quoted in two ways: -The number of dollars equivalent to £50,000 on this date is:

A dollar that is stronger than the British pound would make travel to the United States more attractive to British citizens.

Companies choose a standard exchange rate to compute the cost buildup in their domestic currency.

One of the most important requirements of the Foreign Corrupt Practices Act is the maintenance of an adequate system of internal control procedures.

A U.S.public corporation's decision to globalize impacts all of following except:

Which of the following does not affect the cost associated with producing and selling goods and services in global markets?

Payments made by American companies to motivate foreign officials to undertake actions more rapidly than they might otherwise are prohibited by the Foreign Corrupt Practices Act.

"Convergence" means changing the country's existing standards to produce IFRS "equivalent" financial reports.

At the current exchange rate of $1.40 per British pound,a one-day pass to Worldwide Theme Park of Florida sells for 45 pounds at travel agencies throughout Great Britain.If the exchange rate increases to $1.70 per pound,what will happen to the price of a one-day pass sold in Great Britain?

Explain the major provisions of the Foreign Corrupt Practices Act as amended in 1986.

Establishing international accounting standards is the responsibility of:

A wholly owned international subsidiary exists when a company owns 100% equity control of a foreign subsidiary.