Chapter 11 – Multinational Accounting: Foreign Currency Transactions And Financial Instruments
E11-15 (continued)
4.
July 13
Foreign Currency Transaction Loss
450
Accounts Receivable (G)
450
Revalue foreign currency receivable to U.S. dollar equivalent on
settlement date:
$26,250 = G 50,000 x $0.525 July 13 spot rate
– 26,700 = G 50,000 x $0.534 June 30 spot rate
$ 450 = G 50,000 x ($0.525 – $0.534)
Foreign Currency Units (G)
26,250
Accounts Receivable (G)
26,250
Collect foreign currency receivable.
5.
July 13
Foreign Currency Payable to Exchange Broker (G)
250
Foreign Currency Transaction Gain
250
Revalue foreign currency payable to fair value at settlement date using
spot rate because the term of the contract has expired:
$26,250 = G 50,000 x $0.525 July 13 spot rate
– 26,500 = G 50,000 x $0.530 June 30 forward rate
$ 250 = G 50,000 x $0.005
Foreign Currency Payable to Exchange Broker (G)
26,250
Foreign Currency Units (G)
26,250
Pay guilders to exchange broker.
Cash
27,050
Dollars Receivable from Exchange Broker
27,050
Receive dollars from exchange broker for guilders delivered:
$27,050 = G 50,000 x $0.541 rate established in forward contract signed
on May 14.
b.
June 30
FCT gain on account from Netherlands Company
$200
FCT gain on account to Broker
550
Net increase in net income for FYE June 30
$750
c.
July 13
FCT loss on account receivable
from Netherlands Company
$(450)
FCT gain on account to Broker
250
Net decrease in net income
for the period from 7-1 to 7-13
$(200)
Net increase in net income for the FYE 6-30
750
Overall gain on transaction
$ 550
d.
May 14 — June 30 gain
$ 200
July 1 — July 13 loss
(450)
Overall loss if forward contract not used
$(250)
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P11-20 Multiple-Choice Questions on Foreign Currency Transactions
11/1/X8
12/31/X8
1/30/X9
Transaction Date
Balance Sheet Date
Settlement Date
— Purchase with payable
— Receive renminbi upon
denominated in renminbi
settlement of
forward exchange
— Sign 90-day forward
contract
exchange to receive
— Pay renminbi to
renminbi
settle foreign
currency payable
Forward rate:
R 1 = $0.126
R 1 = $0.129
Spot rate:
R 1 = $0.120
R 1 = $0.124
R 1 = $0.127
1.
b –
November 1, 20X8
Foreign Currency Receivable from
Exchange Broker (Renminbi)
12,600
Dollars Payable to Exchange Broker ($)
12,600
Signed 90-day forward exchange contract to purchase 100,000
renminbi:
$12,600 = 100,000 renminbi x $0.126 forward
rate
2.
c –
December 31, 20X8
Foreign Currency Receivable from
Exchange Broker (Renminbi)
300
Foreign Currency Transaction Gain
300
Revalue foreign currency receivable to fair value:
$300 = 100,000 renminbi x ($0.129 – $0.126)
3.
b –
January 30, 20X9
Dollars Payable to Exchange Broker ($)
12,600
Cash
12,600
Deliver U.S. dollars to exchange broker in accordance with forward
exchange contract:
$12,600 = 100,000 renminbi x
$0.126 contract rate
4.
b –
January 30, 20X9
Dollars Payable to Exchange Broker ($)
12,600
Cash
12,600
Deliver U.S. dollars to exchange broker in accordance with forward
exchange contract:
$12,600 = 100,000 renminbi x $0.126,
the 90-day forward rate