Professional Documents
Culture Documents
2.
Which of the following is true about the FASB after the mandatory adoption
of IFRS by US companies?
a. The FASB will serve in an advisory capacity to the IASB.
b. The FASB will remain the designated standard-setter for US companies,
but incorporate IFRS into US GAAP.
c. The role of the FASB post-IFRS adoption has not been determined.
d. The FASB will cease to exist.
3.
4.
5.
7. .
8.
9.
10.
11.
13.
14.
15.
16.
17.
18.
Accounting under IFRS and US GAAP is similar for all of the following
topics except
a. changes in estimates.
b. related party transactions.
c. research and development costs.
d. changes in methods.
Use the following information to answer the next three questions.
On January 1, 2010, AirFrance purchases an airplane for 14,400,000. The
components of the airplane and their useful lives are as follows:
Component
Frame
Engine
Other
Cost
7,200,000
4,800,000
2,400,000
Useful life
24 years
20 years
10 years
Under IFRS, the entry to record the acquisition of the airplane would include
a. a debit to Asset/ Airplane of 14,400,000.
b. a debit to Asset/ Airplane frame of 14,400,000.
c. a debit to Asset/ Airplane engine of 4,800,000.
d. cannot be determined from the information given.
20.
21.
22.
Accounting terminology that differs between IFRS and US GAAP include all
of the following except
a. the use by IFRS of turnover for revenue.
b. the use by IFRS of share premium for additional paid-in-capital.
c. the use by IFRS of other capital reserves for retained earnings.
d. the use by IFRS of issued capital for common stock.
23.
24.
25.
Bellingham sells ten laptops to Bertram Inc. under the limited-time promotion.
Upon delivery of the laptops to Bertram, Bellingham will recognize revenue of
a. 9,300.
b. 9,440
c. 10,000.
d. 11,800.
26.
In the first twelve months following the sale, Bellingham would reduce the
Contract liability warranty account by
a. 784.
b. 980
c. 1,180.
d. 1,380.
27.
28.
Significant differences between IFRS and Chinese GAAP include all of the
following except
a. Chinese GAAP allows the use of LIFO while IFRS prohibits it.
b. Chinese GAAP has different related party disclosure requirements.
c. Chinese GAAP follows the cost principle while IFRS allows for
revaluations and recoveries of impairment losses.
d. Chinese GAAP uses the equity method of accounting for jointly controlled
entities while IFRS also allows proportionate consolidation.
29.
All of the following are options for non-US companies who wish to list
securities on a US exchange except
a. The company can use either IFRS or their local GAAP.
b. If a company uses their local GAAP they must reconcile net income and
shareholders equity or fully disclose all financial information required of
US companies.
c. If a company uses their local GAAP they must reconcile net income and
shareholders equity and fully disclose all financial information required of
US companies
d. The company must file a form 20-F with the SEC.
30.
All of the following are true regarding American Depository Receipts (ADRs)
except
a. Most ADRs are unsponsored, meaning that the DR bank creates a DR
program without a formal agreement with the issuing non-US company.
b. An ADR is a derivative instrument traded in the US that usually represents
a fixed number of publicly traded shares of a non-US company.
c. ADRs are denominated in US dollars.
d. A Level 1 sponsored ADR is the easiest way for a non-US company to
access US markets.
Exercise 11-1
Component Depreciation SMC Company purchases a building for $100,000.
Included in this cost are $12,000 for electrical systems and $15,000 for the roof. The
building is expected to have a 40 year useful life, but the electrical system will last
for 20 years and the roof will last 15 years.
Required: Part A: Assuming that straight-line depreciation is used, compute
depreciation expense assuming that U.S. GAAP is used.
Part B: Assuming that straight line depreciation is used, compute depreciation
expense for year one assuming IFRS is used (assume component depreciation).
Prepare a statement of financial position using the proposed new format as described
in the chapter.
Questions from the Textbook
1. As mentioned in Chapter 1, the project on business combinations was the first
of several joint projects undertaken by the FASB and the IASB in their move
to converge standards globally. Nonetheless, complete convergence has not yet
occurred, and there are those who believe it to be a poor idea. Discuss the
reasons for and against global convergence.
2. In recent months, virtually every topic that has come to the attention of the
standard setters has been undertaken as a joint effort of the FASB and the
IASB rather than as an individual effort by one of the two boards. List and
discuss some of the joint projects that fall into this category.
3. What is the rationale for the harmonization of international accounting
standards?
4. Why is the SEC, once so reluctant to accept IAS, now very willing to allow
firms using IFRS to is-sue securities in the U.S. stock market without
reconciling to U.S. GAAP?
5. Discuss the types of ADRs that non-U.S. companies might use to access the
U.S. markets.
6. Describe the attitude of the FASB toward the IASB (International Accounting
Standards Board).
7. How does the FASB view its role in the development of an international
accounting system? Currently, two members of the IASB board were affiliated
with the FASB. Comment on what effect this might have on the likelihood that
the U.S. standard setters will accept the new IASB statements, if any?
8. List some of the major differences in accounting between IFRS and U.S.
GAAP.
Chapter 12
Accounting for Foreign Currency Transactions And Hedging Foreign Exchange
Risk
Multiple Choice
1.
2.
3.
An indirect exchange rate quotation is one in which the exchange rate is
quoted:
a. in terms of how many units of the domestic currency can be converted into
one unit of foreign currency.
b. for the immediate delivery of currencies exchanged.
c. in terms of how many units of the foreign currency can be converted into
one unit of domestic currency.
d. for the future delivery of currencies exchanged.
4.
5.
6.
7.
Per Unit of
Foreign Currency
$0.73
0.71
0.74
365,000
b. Dollars Receivable
365,000
Discount on Forward Contract
FCU Payable
15,000
350,000
c. FCU Receivable
365,000
Discount on Forward Contract
Dollars Payable
15,000
350,000
d. Dollars Receivable
Discount on Forward Contract
FCU Payable
365,000
350,000
15,000
8.
Per Unit of
Foreign Currency
$0.73
0.71
0.74
Gain/Loss Recorded
$9,000 gain
$9,000 loss
$4,500 gain
$18,000 gain
11.
The exchange rate quoted for future delivery of foreign currency is the
definition of a(n):
a. direct exchange rate.
b. indirect exchange rate.
c. spot rate.
d. forward exchange rate.
12.
The forward exchange rate quoted for the remaining term of a forward
contract is used to account for the contract when the forward contract:
a. extends beyond one year or the current operating cycle.
b. is a hedge of an identifiable foreign currency commitment.
c. is a hedge of an exposed net liability position.
d. was acquired to speculate in foreign currency.
14.
15.
Craiger, Inc. a U.S. corporation, bought machine parts from Reinsch Company
of Germany on March 1, 2011, for 70,000 marks, when the spot rate for marks
was $0.5395. Craigers year-end was March 31, 2011, when the spot rate for
marks was $0.5445. Craiger bought 70,000 marks and paid the invoice on
April 20, 2011, when the spot rate was $0.5495. How much should be shown
in Craigers income statements as foreign exchange (transaction) gain or loss
for the years ended March 31, 2011 and 2012?
a.
b.
c.
d.
2011
$0
$0
$350 loss
$350 loss
2012
$0
$350 loss
$0
$350 loss
16.
17.
c. extraordinary income.
d. deferred income.
18.
19.
Forward Rate
For Dec. 1, 2011
1.47
1.48
September 1, 2011
September 30, 2011 (year-end)
Spot rate
1.46
1.50
Forward Rate
For Dec. 1, 2011
1.47
1.48
The second forward contract was strictly for speculation. On September 30,
2011, what amount of foreign currency transaction gain should Swash Plating
report in income?
a. $0.
b. $2,500.
c. $5,000.
d. $10,000.
21.
Per Unit of
Foreign Currency
$0.93
0.91
0.94
232,500
b. Dollars Receivable
232,500
Discount on Forward Contract
FCU Payable
7,500
225,000
c.
FCU Receivable
232,500
Discount on Forward Contract
Dollars Payable
d. Dollars Receivable
Discount on Forward Contract
FCU Payable
22.
7,500
225,000
225,000
7,500
232,500
Per Unit of
Foreign Currency
$0.83
0.81
0.84
a.
b.
c.
d.
23.
Receivable Balance
$170,000
$162,000
$168,000
$164,000
Gain/Loss Recorded
$4,000 gain
$4,000 loss
$2,000 gain
$2,000 loss
24.
On April 1, 2011, Trent Company entered into two forward exchange contracts
to purchase 300,000 euros each in 90 days. The relevant exchange rates are as
follows:
April 1, 2011
April 30, 2011 (year-end)
Spot rate
1.16
1.20
Forward Rate
For Aug. 1, 2011
1.17
1.18
On April 1, 2011, Trent Company entered into two forward exchange contracts
to purchase 300,000 euros each in 90 days. The relevant exchange rates are as
follows:
April 1, 2011
April 30, 2011 (year-end)
Spot rate
1.16
1.20
Forward Rate
For Aug. 1, 2011
1.17
1.18
The second forward contract was strictly for speculation. On April 30, 2011,
what amount of foreign currency transaction gain should Trent report in
income.
a.
b.
c.
d.
$0.
$3,000.
$9,000.
$12,000.
Problems
12-1
Required:
Compute each of the following:
1.
2.
The dollars that would have been received from the account receivable if
Dorsey had not hedged the sale contract with the forward contract.
3.
4.
The transaction gain or loss on the exposed asset related to the sale in 2010
and 2011.
5.
The transaction gain or loss on the forward contract in 2010 and 2011.
6.
12-2
Required:
Prepare journal entries necessary for Derrick during 2010 and 2011 to account for the
transactions described above.
12-3
$1.3076
1.2980
1.3060
1.3150
1.2972
Required:
Prepare all journal entries relative to the above on the books of Colony Corp. on the
following dates:
1.
November 1, 2010.
2.
Year-end adjustments on December 31, 2010.
3.
March 1, 2011. (Include all adjustments related to the forward contract.)
12.4 On October 1, 2010, Nance Company purchased inventory from a foreign
customer for 750,000 units of foreign currency (FCU) due on January 31, 2011.
Simultaneously, Nance entered into a forward contract for 750,000 units of FC
for delivery on January 31, 2011, at the forward rate of $0.75. Payment was
made to the foreign customer on January 31, 2011. Spot rates on October 1,
December 31, and January 31, were $0.72, $0.73, and $0.76, respectively.
Nance amortizes all premiums and discounts on forward contracts and closes
its books on December 31.
Required:
A.
B.
C.
On July 15, Worth, Inc. purchased 88,500,000 yen worth of parts from a
Tokyo company paying 20% down, and the balance is due in 90 days. Interest
is payable at a rate of 8% on the unpaid balance. The exchange rate on July
15, was $1.00 = 118 Japanese yen. On October 13, the exchange rate was
$1.00 = 114 Japanese yen.
Required:
Prepare journal entries to record the purchase and payment of this foreign currency
transaction in U.S. dollars.
12-7
1 euro = 1.45
1 euro = 1.43
1 euro = 1.44
Required:
Prepare the journal entries that Bisk would record on November 1, December 31, and
January 31.
12.8
2.
3.
Spot rates and the forward rates for February 1, 2012, settlement were as
follows (dollars per peso):
Spot Rate
Forward Rate
for 2/1/12
November 1, 2011
Balance sheet date (12/31/11)
February 1, 2012
4.
$0.0954
0.0949
0.0947
$0.0948
0.0944
On February 1, the equipment was sold for 500,000 pesos. The cost of the
equipment was $20,000.
Required:
Prepare all journal entries needed on November 1, December 31, and February 1 to
account for the forward contract, the firm commitment, and the transaction to sell the
equipment.
Short Answer
1.
2.
Accounting for a foreign currency transaction involves the terms measured and
denominated. Describe a foreign currency transaction and distinguish between
the terms measured and denominated.
There are a number of business situations in which a firm may acquire a forward
exchange contract. Identify three common situations in which a forward
exchange contract can be used as a hedge.
Define currency exchange rates and distinguish between direct and indirect
quotations.
2.
Explain why a firm is exposed to an added risk when it enters into a transaction that is
to be settled in a foreign currency.
3.
Name the three stages of concern to the accountant in accounting for importexport
transactions. Briefly explain the accounting for each stage.
4.
5.
A U.S. firm carried a receivable for 100,000 yen. Assuming that the direct exchange
rate declined from $.009 at the date of the transaction to $.006at the balance sheet
date, compute the transaction gain or loss. What balance would be reported for the
receivable in the firms balance sheet?
6.
7.
8.
Explain the effects on income from hedging a foreign currency exposed net asset
position or net liability position.
9.
10.
The FASB classifies forward contracts as those acquired for the purpose of hedging
and those acquired for the purpose of speculation. What main differences are there in
accounting for these two classifications?
11.
How are foreign currency exchange gains and losses from hedging a forecasted
transaction handled?
12.
What is a put option, and how might it be used to hedge a forecasted transaction?
13.
Define a derivative instrument, and describe the keystones identified by the FASB for
the ac-counting for such instruments.
14.
15.
List some of the criteria laid out by the FASB that are required for a gain or loss on
forecasted trans-actions (a cash flow hedge) to be excluded from the income
statement. If these criteria are satisfied, where are the gains or losses reported, and
when (if ever) are they shown in the income statement? What is the rationale for this
treatment?