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Chapter 15 - Global Business and Accounting
Financial and Managerial Accounting, 17e 15-7
CHAPTER 15 NAME #
10-MINUTE QUIZ C SECTION____________________________________
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:
Column
Case
Type of Credit
Transaction
1
Currency Used in
Contract
2
Exchange Rate
Direction
3
Effect on
Income
4
A
Sales
Foreign currency
Rising
B
Purchases
Rising
No effect
C
Purchases
Foreign currency
Loss
D
Sales
U.S. dollars
Falling
E
Foreign currency
Falling
Gain
Instructions
After evaluating the information about each case, fill the blank space that has been left in one of
the four columns denoted by a yellow color. 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.”
Chapter 15 - Global Business and Accounting
CHAPTER 15 NAME #
10-MINUTE QUIZ D SECTION____________________________________
Listed below are nine global business terms introduced in this chapter:
Foreign exchange risk
Future contracts
International Accounting
Standards Board
Loss on fluctuation in
foreign exchange rates
Hedging
Exporting
Planned economy
International licensing
Foreign Corrupt Practices
Act
Each of the following statements may (or may not) describe one of these 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 Selling a good or service to a foreign customer.
______________________________
c Government allocates resources and determines output through central planning.
______________________________
d The organization responsible for developing uniform worldwide accounting standards.
______________________________
e Distinguishes between illegal influence peddling and legal facilitating payments.
______________________________
f A cross-border contractual agreement allowing one company to use trademarks, patents, or
technology of another company.
______________________________
g The impact on the value of a company of unexpected fluctuations in the exchange rate.
______________________________
Chapter 15 - Global Business and Accounting
Financial and Managerial Accounting, 17e 15-9
SOLUTIONS TO CHAPTER 15 10-MINUTE QUIZZES
QUIZ A
QUIZ B
2010
General Journal
Nov. 1
Accounts receivable
10,100
Sales
10,100
To record the sale of beef steaks to Japanese restaurant for
1 million yen when the exchange rate is $0.0101 U. S.
dollars per yen (1 million yen x $0.0101 = $10,100).
Dec. 31
Accounts receivable
100
Gain on fluctuations in foreign exchange rates
100
To adjust balance of 10,000 dollar account receivable
to amount indicated by year-end exchange rate:
Original account balance $10,100
Adjusted balance (1 mil. yen x $0.0102) $10,200
Required adjustment (gain) $100
2011
Feb. 1
Cash
10,300
Gain on fluctuations in foreign exchange rate
100
Accounts receivable
10,200
To record receipt $10,300 in settlement of account receivable,
and to recognize gain from exchange rate since Dec. 31
(1 million yen x $0.0103 = $10,300)
Accounts receivable, adjusted balance $10,200
Amount paid, Feb 1 $10,300
Gain from increase in exchange rate $100
Chapter 15 - Global Business and Accounting
QUIZ C
Column
Case
Type of Credit
Transaction
1
Currency Used in
Contract
2
Exchange Rate
Direction
3
Effect on
Income
4
A
Sales
Foreign currency
Rising
Gain
B
Purchases
U.S. dollars
Rising
No effect
C
Purchases
Foreign currency
Rising
Loss
D
Sales
U.S. dollars
Falling
No effect
QUIZ D
a Hedging
b Exporting
Learning Objective: 15-04, 15-05, 15-06
--*
Chapter 15 - Global Business and Accounting
Financial and Managerial Accounting, 17e 15-11
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Assignment Guide to Chapter 15
Brief Exercises
Exercises
Problems
Cases
Net
1 – 10
1 – 15
1
2
3
4
5
6
7
8
1
2
4
3
Time estimate (in minutes)
< 15
< 15
40
40
25
30
25
40
30
25
40
50
30
40
Difficulty rating
E
E
M
M
M
S
E
M
M
M
M
M
M
M
Learning Objectives:
1, 2, 9
√
1. Define four mechanisms companies
use to globalize their business
activities.
2. Identify how global environmental
forces-(a) political and legal
systems, (b) economic systems, (c)
culture, and (d) technology and
infrastructure-affect accounting
practices.
7
1, 2, 4, 5, 9,
13, 15
√
√
√
3. Explain why there is demand for
harmonization of global financial
reporting standards.
1, 10, 13, 14
√
√
4. Demonstrate how to convert an
amount of money from one
currency to another.
1, 2, 3, 6, 10
1, 3, 6, 7, 8,
12
5. Compute gains or losses on
receivables or payables that are
stated in a foreign currency when
exchange rates fluctuate.
2, 4, 5, 8
1, 5, 6, 8
√
√
√
6. Describe techniques for “hedging”
against losses from fluctuations in
exchange rates.
5, 8
1, 11
√
7. Discuss how global sourcing
increases product cost complexity.
1, 4, 12
√
8.
Explain the importance of the
Foreign Corrupt Practices Act.
9
1, 4
