15–36
75.
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.
15–38
76.
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, 2014: 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, 2014: 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, 2015: 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.
15–40
77.
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, 2014: 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, 2014: 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, 2015: 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.
15–42
78.
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.
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.”
79.
Exchange rates and hedging
On October 1 2015, 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,
2015. The exchange rate on October 1, 2015 was: $1 = 1.4 euros.
Instructions:
(a) If the exchange rate on December 1 2015 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, 2015. Glenn can enter into a hedging contract on October 1, 2015
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, 2015? (Do not round your intermediate computations and round final
answers to nearest whole dollar.)
80.
Prepare journal entries for the following transactions for Inter-Global Co.
October 10: Purchased merchandise on account from Le Monde, a French company, for
80,000 euros. The exchange rate was $0.82.
November 2: Paid Le Monde for the merchandise purchased on October 1. The exchange
rate at this date was $0.83.
November 15: Sold merchandise to Nippon, a Japanese company for 300,000 yen on
account. The rate of exchange was $0.0091.
November 20: The Japanese company paid the full amount. The exchange rate was
$0.0090.
December 5: Sold merchandise to Ponti, an Italian company for $24,000. The exchange rate
is $0.81. The Italian company agrees to pay in U.S. dollars.
December 18: Collected the full amount from the Italian company when the exchange rate
is $0.82.
81.
Explain the major provisions of the Foreign Corrupt Practices Act as amended in 1986.
82.
Differentiate between Adoption and Convergence as related to International Financial
Reporting Standards.