1. Pigskin Co., a U.S. corporation, sold inventory on credit to a British
company on April 8, 2011. Pigskin received payment of 35,000 British pounds on
May 8, 2011. The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May
8. What amount of
foreign exchange gain or loss
should be recognized? (
round to
the nearest dollar
)
2. Norton Co., a U.S. corporation, sold inventory on December 1, 2011, with
payment of 10,000 British pounds to be received in sixty days. The pertinent
exchange rates were as follows:
For what amount should
Sales
be credited on December 1?
3. Norton Co., a U.S. corporation, sold inventory on December 1, 2011, with
payment of 10,000 British pounds to be received in sixty days. The pertinent
exchange rates were as follows:
What amount of
foreign exchange gain or loss
should be recorded on December
31?
4. Norton Co., a U.S. corporation, sold inventory on December 1, 2011, with
payment of 10,000 British pounds to be received in sixty days. The pertinent
exchange rates were as follows:
What amount of
foreign exchange gain or loss
should be recorded on January 30?
5. Brisco Bricks purchases raw material from its foreign supplier, Bolivian
Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30
days. May 31 is Brisco’s fiscal year-end. The pertinent exchange rates were as
follows:
For what amount should Brisco’s
Accounts Payable
be credited on May 8?
6. Brisco Bricks purchases raw material from its foreign supplier, Bolivian
Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30
days. May 31 is Brisco’s fiscal year-end. The pertinent exchange rates were as
follows:
How much
Foreign Exchange Gain or Loss
should Brisco record on May 31?
7. Brisco Bricks purchases raw material from its foreign supplier, Bolivian
Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30
days. May 31 is Brisco’s fiscal year-end. The pertinent exchange rates were as
follows:
How much US $will it cost Brisco to finally pay the payable on June 7?
8. On June 1, CamCo received a signed agreement to sell inventory for
¥500,000. The sale would take place in 90 days. CamCo immediately signed a 90–
day forward contract to sell the yen as soon as they are received. The spot rate
on June 1 was ¥1 =$.004167, and the 90–day forward rate was ¥1 = $.00427. At
what amount would CamCo record the Forward Contract on June 1?
9. Belsen purchased inventory on December 1, 2010. Payment of 200,000
stickles was to be made in sixty days. Also on December 1, Belsen signed a
contract to purchase §200,000 in sixty days. The spot rate was §1 = .35714, and
the 60-day forward rate was §1 = $.38462. On December 31, the spot rate was
§1 = .34483 and the 30-day forward rate was §1 = .38168. Assume an annual
interest rate of 12% and a fair value hedge. The present value for one month at
12% is .9901.
In the journal entry to record the establishment of a forward exchange contract,
at what amount should the
Forward Contract
account be recorded on December
1?
10. Meisner Co. ordered parts costing §100,000 for a foreign supplier on May
12 when the spot rate was $.24 per stickle. A one-month forward contract was
signed on that date to purchase §100,000 at a forward rate of $.25 per stickle.
On June 12, when the parts were received and payment was made, the spot rate
was $.28 per stickle. At what amount should inventory be reported?
11. Car Corp. (a U.S.-based company) sold parts to a Korean customer on
December 16, 2011, with payment of 10 million Korean won to be received on
January 15, 2012. The following exchange rates applied:
Assuming a forward contract was not entered into, what would be the net impact
on Car Corp.’s 2011 income statement related to this transaction?
12. Car Corp. (a U.S.-based company) sold parts to a Korean customer on
December 16, 2011, with payment of 10 million Korean won to be received on
January 15, 2012. The following exchange rates applied:
Assuming a forward contract was entered into, the foreign currency was originally
sold in the foreign currency market on December 16, 2011 at a
13. Car Corp. (a U.S.-based company) sold parts to a Korean customer on
December 16, 2011, with payment of 10 million Korean won to be received on
January 15, 2012. The following exchange rates applied:
Assuming a forward contract was entered into, at what amount should the
forward contract be recorded at December 31, 2011? Assume an annual interest
rate of 12% and a fair value hedge. The present value for one month at 12% is
.9901.
14. Car Corp. (a U.S.-based company) sold parts to a Korean customer on
December 16, 2011, with payment of 10 million Korean won to be received on
January 15, 2012. The following exchange rates applied:
Assuming a forward contract was entered into, how would the forward contract
be reflected on Car’s December 31, 2011 balance sheet?
15. Car Corp. (a U.S.-based company) sold parts to a Korean customer on
December 16, 2011, with payment of 10 million Korean won to be received on
January 15, 2012. The following exchange rates applied:
Assuming a forward contract was entered into, what would be the net impact on
Car Corp.’s 2011 income statement related to this transaction? Assume an annual
interest rate of 12% and a fair value hedge. The present value for one month at
12% is .9901.
16. Car Corp. (a U.S.-based company) sold parts to a Korean customer on
December 16, 2011, with payment of 10 million Korean won to be received on
January 15, 2012. The following exchange rates applied:
Assuming a forward contract was entered into on December 16, what would be
the net impact on Car Corp.’s 2012 income statement related to this transaction?
17. Mills Inc. had a receivable from a foreign customer that is due in the local
currency of the customer (stickles). On December 31, 2010, this receivable for
§200,000 was correctly included in Mills’ balance sheet at $132,000. When the
receivable was collected on February 15, 2011, the U.S. dollar equivalent was
$144,000. In Mills’ 2011 consolidated income statement, how much should have
been reported as a foreign exchange gain?
18. A spot rate may be defined as
19. The forward rate may be defined as
20. Which statement is true regarding a foreign currency option?
21. A U.S. company sells merchandise to a foreign company denominated in
U.S. dollars. Which of the following statements is true?
22. A U.S. company sells merchandise to a foreign company denominated in
the foreign currency. Which of the following statements is true?