Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
57. Lion Corporation, a U.S. firm, entered into several foreign currency transactions during the year. Determine
the effect of each transaction on net income for that current accounting year only. Lion has a June 30 year end.
Required:
a.
On January 15, Lion sold $30,000 (Canadian) in merchandise to a Canadian firm, to be paid for on February 15 in Canadian dollars.
Canadian dollars were worth $0.85 (U.S.) on January 15 and $0.82 (U.S.) on February 15.
b.
On June 1, Lion purchased and received a computer costing 100,000 euros from a German firm. Lion paid for the computer on August
1. On June 1, to reduce exchange risks, Lion purchased a contract to buy 100,000 marks in 60 days. Exchange rates are as follows:
Spot
Forward
6/1
$0.53
$0.60
6/30
$0.54
$0.58
Discount rate = 6%
c.
On June 1, Lion sold merchandise to a customer for 100,000 FC and purchased an option to sell 100,000 FC in 60 days to hedge the
receivable. The option sold for a premium of $6,500 and a strike price of $1.20. The value of the option 6/30 was $12,500. The spot
rate on June 1 was $1.19 and $1.25 on June 30.
58. Wolters Corporation is a U.S. corporation that purchased 50,000 chocolate bars from a foreign manufacturer
on 6/1/X9 for 80,000 foreign currency units, to be paid on 9/1/X9. On 6/1/X9 Wolters also entered into a
forward contract to purchase 80,000 foreign currency units on 9/1/X9. Wolters has a July 31 year end.
Exchange rates are as follows:
Date
Spot Rate
Fwd Rate
6/1/X9
$0.64
$0.645
7/31/X9
$0.66
$0.68
9/1/X9
$0.69
$0.69
Discount rate = 12%
Required:
Make the necessary journal entries for Wolters for the period June 1 through September 1, 20X9.
59. On November 1, 20X1, a U.S. company purchased inventory from a foreign supplier for 100,000 FC, with
payment to be made on January 31, 20X2, in FC. To hedge against fluctuations in exchange rates, the firm
entered into a forward exchange contract on November 1 to purchase 100,000 FC on January 31, 20X2. The
U.S. firm has a December 31 year end for accounting purposes. The following exchange rates may apply:
Date
Spot Rate
Fwd Rate
11/1/X1
$0.15
$0.13
12/31/X1
$0.16
$0.14
1/31/X2
$0.165
$0.165
Discount rate = 12%
Required:
Make all the necessary journal entries for the U.S. firm relative to these events occurring between November 1, 20X1, and January 31, 20X2.
60. On November 1, 20X1, a U.S. company sold merchandise to a foreign firm for 100,000 FC with payment to
be made on January 31, 20X2, in FC. To hedge against fluctuations in exchange rates, the firm also entered into
a forward exchange contract on November 1, 20X1 to sell 100,000 FC on January 31, 20X2. The U.S. firm has
a December 31 year end for accounting purposes. The following exchange rates may apply:
Date
Spot Rate
Fwd Rate
11/1/X1
$0.15
$0.17
12/31/X1
$0.16
$0.175
1/31/X2
$0.165
$0.165
Discount rate = 10%
Required:
Make all the necessary journal entries for the U.S. firm relative to these events occurring between November 1, 20X1, and January 31, 20X2.
61. Blue & Green, Inc. sold merchandise for 100,000 FC to a foreign vendor on December 1, 20X5. Payment in
FC is due January 31, 20X6. On December 1, 20X5, Blue & Green signed an agreement with a foreign
exchange broker to sell 100,000 FC on January 30, 20X6. Exchange rates to sell 1 FC are as follows:
Date
Spot Rate
Fwd Rate
12/1/X5
$1.45
$1.40
12/31/X5
$1.43
$1.35
1/31/X6
$1.41
$1.41
Fiscal Year End is 12/31; Discount rate = 12%
Required:
Prepare the journal entries for December 1 through January 31 related to the events described above. Ignore Cost of Goods Sold.
62. Wolters Corporation is a U.S. corporation that purchased 50,000 chocolate bars from a foreign manufacturer
on 6/1/X9 for 80,000 foreign currency units, to be paid on 9/1/X9. On 6/1/X9 Wolters also entered into a
forward contract to purchase 80,000 foreign currency units on 9/1/X9. Wolters has a July 31 year end.
Exchange rates are as follows:
Date
Spot Rate
Option Price
6/1/X9
$0.64
$800
7/31/X9
$0.66
$1,500
9/1/X9
$0.69
$3,600
The option strike price was $0.645.
Required:
Make the necessary journal entries for Wolters for the period June 1 through September 1, 20X9.
63. Blue & Green, Inc. sold merchandise for 100,000 FC to a foreign vendor on December 1, 20X5. Payment in
FC is due January 31, 20X6. On December 1, 20X5, Blue & Green purchased an option for $500 to sell 100,000
FC at $1.45 on January 30, 20X6. Exchange rates to sell 1 FC are as follows:
Date
Spot Rate
Option Value
12/1/X5
$1.45
$500
12/31/X5
$1.43
$2,200
1/31/X6
$1.41
$4,000
Fiscal Year End is 12/31.
Required:
Prepare the journal entries for December 1 through January 31 related to the events described above. Ignore Cost of Goods Sold.
