63. On October 1, 2011, Eagle Company forecasts the purchase of inventory
from a British supplier on February 1, 2012, at a price of 100,000 British pounds.
On October 1, 2011, Eagle pays $1,800 for a three-month call option on 100,000
pounds with a strike price of $2.00 per pound. The option is considered to be a
cash flow hedge of a forecasted foreign currency transaction. On December 31,
2011, the option has a fair value of $1,600. The following spot exchange rates
apply:
What is the amount of option expense for 2012 from these transactions?
64. On October 1, 2011, Eagle Company forecasts the purchase of inventory
from a British supplier on February 1, 2012, at a price of 100,000 British pounds.
On October 1, 2011, Eagle pays $1,800 for a three-month call option on 100,000
pounds with a strike price of $2.00 per pound. The option is considered to be a
cash flow hedge of a forecasted foreign currency transaction. On December 31,
2011, the option has a fair value of $1,600. The following spot exchange rates
apply:
What is the amount of Adjustment to Accumulated Other Comprehensive Income
for 2012 from these transactions?
65. On October 1, 2011, Eagle Company forecasts the purchase of inventory
from a British supplier on February 1, 2012, at a price of 100,000 British pounds.
On October 1, 2011, Eagle pays $1,800 for a three-month call option on 100,000
pounds with a strike price of $2.00 per pound. The option is considered to be a
cash flow hedge of a forecasted foreign currency transaction. On December 31,
2011, the option has a fair value of $1,600. The following spot exchange rates
apply:
What is the amount of Cost of Goods Sold for 2012 as a result of these
transactions?
66. On October 1, 2011, Eagle Company forecasts the purchase of inventory
from a British supplier on February 1, 2012, at a price of 100,000 British pounds.
On October 1, 2011, Eagle pays $1,800 for a three-month call option on 100,000
pounds with a strike price of $2.00 per pound. The option is considered to be a
cash flow hedge of a forecasted foreign currency transaction. On December 31,
2011, the option has a fair value of $1,600. The following spot exchange rates
apply:
What is the 2012 effect on net income as a result of these transactions?
67. Yelton Co. just sold inventory for 80,000 euros, which Yelton will collect in
sixty days. Briefly describe a hedging transaction Yelton could engage in to
reduce its risk of unfavorable exchange rates.
68. Where can you find exchange rates between the U.S. dollar and most
foreign currencies?
69. What is meant by the
spot rate
?
70. How is the fair value of a Forward Contract determined by U.S. GAAP?
71. What is the major assumption underlying the one-transaction perspective?
72. What is the purpose of a hedge of foreign exchange risk?
73. How does a foreign currency forward contract differ from a foreign
currency option?
74. What factors create a foreign exchange gain?
75. What happens when a U.S. company purchases goods denominated in a
foreign currency and the foreign currency depreciates?
76. What happens when a U.S. company purchases goods denominated in a
foreign currency and the foreign currency appreciates?
77. What happens when a U.S. company sells goods denominated in a foreign
currency and the foreign currency depreciates?
78. What happens when a U.S. company sells goods denominated in a foreign
currency and the foreign currency appreciates?
79. Gaw Produce Company purchased inventory from a Japanese company on
December 18, 2011. Payment of 4,000,000 yen (¥) was due on January 18, 2012.
Exchange rates between the dollar and the yen were as follows:
Required:
Prepare all journal entries for Gaw Produce Co. in connection with the purchase
and payment.
80. Old Colonial Corp. (a U.S. company) made a sale to a foreign customer on
September 15, 2011, for 100,000 stickles. Payment was received on October 15,
2011. The following exchange rates applied:
Required:
Prepare all journal entries for Old Colonial Corp. in connection with this sale
assuming that the company closes its books on September 30 to prepare interim
financial statements.
81. Coyote Corp. (a U.S. company in Texas) had the following series of
transactions in a foreign country during 2011:
The appropriate exchange rates during 2011 were as follows:
Prepare all journal entries in U.S. dollars along with any December 31, 2011
adjusting entries. Coyote uses a perpetual inventory system.
82. Coyote Corp. (a U.S. company in Texas) had the following series of
transactions in a foreign country during 2011:
The appropriate exchange rates during 2011 were as follows:
What amount will Coyote Corp. report in its 2011 balance sheet for
Inventory
?