Professional Documents
Culture Documents
LO1
1.
LO1
2.
$
37,043.97.
$
38,076.93.
$1,029,600.00.
$1,058,310.00.
20,100
b. Cash
Exchange Loss
Accounts Receivable
20,100
300
c. Cash
20,400
d. Cash
20,700
Accounts Receivable
Accounts Receivable
20,100
20,400
Accounts Receivable
Exchange Gain
20,400
20,400
300
LO2
3.
1
1
1
1
1$AUS
1$AUS
1$AUS
1$AUS
=
=
=
=
$.71US
$.73US
$.79US
$.83US
LO2
4.
LO2
5.
The
The
The
All
LO3
7.
LO3
8.
What exchange
statement?
a.
b.
c.
d.
LO3
10.
a
a
a
a
loss
loss
gain
gain
of
of
of
of
gain
or
$1.60
$1.62
$1.56
loss
appeared
on
Ducks
20X4
income
$6,000.
$3,000.
$3,000.
$6,000.
What is the final amount of the loan payable that Duck showed
on its books, in dollars, just before it repaid the loan?
a.
b.
c.
d.
$234,000.
$236,000.
$240,000.
$243,000.
LO4
11.
LO4
12.
for
kiwis
for
kiwis
for
kiwis
for
LO4
13.
kiwis
$(8,800).
$(4,400).
$ 4,400.
$ 8,800.
LO4
14.
less
more
less
more
than
than
than
than
the
the
the
the
LO5
15.
LO5
16.
LO6
17.
Historical cost.
Effective hedge price.
Strike price.
Fair value.
LO6
18.
LO6
19.
LO7
20.
LO2
Exercise 1
On September 1, 20X5,
Osaka Company of Japan
The spot rate for yen
was $0.0077 on October
Required:
1. Did the exchange rate strength or weaken from September to October
and what are the implications for Cormorants business?
2. What journal entry did Cormorant record on September 1, 20X5?
3. What journal entry did Cormorant record on October 1, 20X5?
LO3
Exercise 2
On October 15, 20X5, Ibis Corporation, a French company, ordered
merchandise listed on the Internet for 20,000 Euros from Spoonbill
Corporation, a US corporation, which immediately accepted the order.
The Euro rate was $1.20 US on October 15.
On November 15, 20X5
Spoonbill shipped the goods and billed Ibis the purchase price of
20,000 Euros when the Euro rate was $1.30 US. Ibis paid the bill on
December 10, 20X5. Three days later Spoonbill exchanged the 20,000
Euros for US dollars when the Euro rate was $1.28US.
Required:
Compute the foreign currency gains or losses on the December 31, 20X5
financial statements and show your calculations.
LO3
Exercise 3
On November 1, 20X3, the Penguin Corporation, a US corporation, purchased
an extruding machine from Shearwater Corporation, a UK company. The
purchase price was $10,000 and Penguin agreed to pay in pounds on February
1, 20X4. Both corporations are on a calendar year accounting period. Assume
that the spot rates for the British pound on November 1, 20X3, December 31,
20X3, and February 1, 20X4, are $1.60, $1.62, and $1.66, respectively.
Required:
Record the November 1, December 31, and February 1 transactions in the
General Journals of Penguin Corporation and Shearwater Corporation. If no
entry is required on a particular date, indicate No entry in the General
Journal.
2009 Pearson Education, Inc. publishing as Prentice Hall
12-8
LO4
Exercise 4
On November 1, 20X3, Petrel Corporation, a calendar-year US
corporation, invested in a purely speculative contract to purchase 1
million yen on January 30, 20X4, from the Karoke Trading Company, a
Japanese brokerage firm. Petrel agreed to purchase 1,000,000 yen from
Karoke at a fixed price of $0.0100 per yen. Karoke agreed to transmit
1,000,000 yen to Petrel on February 1, 20X4. The spot rates for yen
are:
Nov 01, 20X3
Dec 31, 20X3
Jan 30, 20X4
1 yen = $0.0097
1 yen = $0.0103
1 yen = $0.0106
The 30-day forward rate for yen on December 31, 20X3 was $0.0104.
Required:
Prepare the General Journal entries that
November 1, December 31, and January 30.
Petrel
would
record
on
LO4
Exercise 5
On November 1, 20X5, Albatross Corporation, a calendar-year US
corporation, invested in a purely speculative contract to purchase 1
million euros on January 30, 20X6, from Munich Company, a German
brokerage firm. Albatross agreed to purchase 1,000,000 euros from
Munich at a fixed price of $1.020 per euro. Munich agreed to transmit
1,000,000 euros to Albatross on January 30, 20X6. The spot rates for
euros are:
Nov 01, 20X5
Dec 31, 20X5
Jan 30, 20X6
1 euro = $1.015
1 euro = $0.995
1 euro = $1.010
The 30-day futures rate for euros on December 31, 20X5 was $1.005.
Required:
Prepare the General Journal entries that Albatross would record on
November 1, December 31, and January 30.
LO7
Exercise 6
0n June 1, 20X5, Stork Industries purchases an option contract for
$5,000 on 10,000 gallons of aviation gas to minimize its purchasing
cost price exposure.
At the time, the market price is $2.50 per
gallon and the option price of $2 per gallon will expire 6 months
later. Stork can exercise the option at its discretion. When Stork
prepares quarter reports on June 30, the option is worth $4.50 and
Stork is still holding it.
On August 1, Stork exercises the option when the gas market price is
$5.00 per gallon and purchases 40,000 gallons of gas. On August 15,
Stork uses all of the gas on a charter flight.
Required:
What are Storks journal entries with regard to the aviation gas
option?
LO7
Exercise 7
On November 1, 20X5, US Pelican Company entered into a 90 day forward
contract of 200,000 pounds to hedge a commitment to purchase special
equipment on February 1, 20X6 from a British firm Raven Inc. Assume
Pelican uses a 12% interest rate.
The relevant exchange rates are of dollars per pound:
Spot Rate
Forward Rate
(for Feb 1, 20X6)
November 1, 20X5
1.32
1.35
December 31, 20X5
1.47
1.50
February 1, 20X6
1.55
-
Required:
1.What journal entry did Pelican record on November 1, 20X5?
2.What journal entry did Pelican record on December 1, 20X5?
3.What journal entry did Pelican record on February 1, 20X6 if the
purchase was made?
LO8
Exercise 8
On November 1, 20X3, Darter Corporation, a US corporation, purchased
from Jacana Corporation, a Mexican company, some machinery that cost
1,000,000 pesos. The invoice was payable in pesos on January 30,
20X4. To hedge against rapid changes in the peso, Darter entered into
a forward exchange contract on November 1, 20X3 with AB Trader &
Company, a US brokerage and investment firm. The contract specified
that AB Trader would sell 1,000,000 pesos to Darter at $0.102 per
peso for settlement on January 30, 20X4.
Assume that all three companies
standards and have December 31st
on November 1, December 31, and
$0.107, respectively. The 30-day
31, 20X3 is $0.101.
Required:
Record General Journal entries for Darter Corporation on November 1,
December 31, and January 30. If no entry is required on a particular
date, indicate No entry in the General Journal.
LO8
Exercise 9
On November 1, 20X3, Gannet Corporation purchased 5,000 television
sets for its merchandise inventory from Seoul, a South Korean firm,
at a total quoted cost of 600,000,000 won (W). On this date, the spot
rate for won was $1 = 750W. On the same day, Gannet invested $900,000
cash in a non-interest bearing account with Tokyo, a Japanese bank,
to hedge its exposed liability position. The account payable to Seoul
is due on January 30, 20X4. The exchange rates on December 31, 20X3
and January 30, 20X4 were $1 = 730W, and $1 = 700W, respectively.
Gannet agreed to pay Seoul in won. Tokyo held the deposit in won but
will remit dollars back to Gannet on January 30th.
Assume that Gannet, Seoul and Tokyo are subject
accounting standards and have December 31 year-ends.
to
the
same
Required:
Prepare all the journal entries for Gannet Corporation's General
Journal on November 1, 20X3, December 31, 20X3, and January 30, 20X4.
If no entry is required on a particular date, indicate No entry in
the General Journal.
LO8
Exercise 10
On November 1, 20X5, US Frigatebird Company sold an airplane worth $1
million Australian dollars to Australian company Heron Inc. to be
delivered on February 1, 20X6 in Sydney.
In order hedge foreign
exchange, Frigatebird entered into a 90 day forward contract on the
same day for the amount of the sale at .73 US per Australian dollar.
The relevant exchange rates are of US dollars per Australian dollar:
Spot Rate
November 1, 20X5
.73
December 31, 20X5
.75
February 1, 20X6
.79
Required:
1.What journal entry did Frigatebird record on November 1, 20X5?
2.What journal entry did Frigatebird record on December 1, 20X5?
3.What journal entry did Frigatebird record on February 1, 20X6 if
the purchase was made?
SOLUTIONS
Multiple Choice Questions
1.
2.
3.
4.
5.
6.
97,500
100,000
(2,500)
$
7.
8.
(1,950)
168,000
167,000
1,000
$
$
9.
10.
11.
12.
167,000
167,500
500
14.
15.
c
2009 Pearson Education, Inc. publishing as Prentice Hall
12-13
16.
17.
18.
19.
20.
Exercise 1
Requirement 1
The foreign exchange rate weakened making the purchase of goods on
time cheaper from Japan.
Requirement 2 and 3
Date
9/01/X5
Account Name
Merchandise
Accounts Payable: Osaka
Debit
158,000
10/01/X5
158,000
Credit
158,000
4,000
154,000
Exercise 2
A $1,042 foreign exchange loss
Spoonbills General Journal
Date
10/15/X5
Account Name
Accounts receivable
Sale 20,000/1.2
12/10/X5
No entry
12/13/X5
Cash 20,000/1.28
Foreign exchange loss
Accounts receivable
Debit
16,667
Credit
16,667
15,625
1,042
16,667
Exercise 3
Date
Nov 01
Dec 31
Feb 01
Direct Method
1 = $1.60
1 = $1.62
1 = $1.66
Indirect Method
$1 = .6250
$1 = .6173
$1 = .6024
Account Name
Machinery
Accounts Payable: Shearwater
Debit
10,000
12/31/X1
Exchange Loss
Accounts Payable: Shearwater
125
Credit
10,000
125
Exchange Loss
Accounts Payable: Shearwater
Accounts Payable: Shearwater
Cash
250
250
10,375
10,375
12/31/X1
No entry
02/01/X2
Cash
6,250
6,250
6,250
6,250
Exercise 4
Petrels General Journal
11/01/X1
Contract Receivable
Contract Payable
(1,000,000 x $0.0100)
12/31/X1
Contract Receivable
Exchange Gain
{1,000,000 x ($.0104 0.0100)}
400
01/30/X2
Contract Receivable
Exchange Gain
{1,000,000 x ($.0106 - .0104)}
200
Cash
Contracts Payable
Cash
Contract Payable
10,000
10,000
400
200
10,600
10,000
10,000
10,600
Exercise 5
Albatrosss General Journal
11/01/X3
12/31/X3
01/30/X4
Contract Receivable
Contract Payable
(1,000,000 x $1.020/euro)
1,020,000
1,020,000
Exchange Loss
Contract Receivable
{1,000,000 x ($1.010 $1.020)}
10,000
Contract Receivable
Exchange Gain
{1,000,000 x ($1.015 - $1.010)}
5,000
Cash
Contract Payable
Cash
Contract Receivable
10,000
1,015,000
1,020,000
5,000
1,020,000
1,015,000
Exercise 6
Storks General Journal
6/01/X5
6/30/X5
20,000
Cash
30,000
8/01/X5
8/15/X5
5,000
20,000
Aviation gas
Cash
200,000
200,000
5,000
25,000
5,000
200,000
200,000
25,000
25,000
Exercise 7
Pelicans General Journal
12/31/X5
Forward contract
OCI
29,703
29,703
(1.35-1.50)x200,000/(1.01)1
Implicit
rate
1.32x200,000(1+r)3=1.35x200,000
r=0.007519
Discount Amortization
11/30
12/31
1/31
1985.04
1999.97
2015.00
12/31/X5
02/01/X6
Balance
264000
265985
267985
270000
3985
3985
Forward contract
AOCI
10,297
Cash (1.55-1.35)x200,000
Forward contract
40,000
10,297
40,000
Equipment
Cash
310,000
Equipment
OCI
2015
310,000
2015
Exercise 8
Darters General Journal
Date
11/01/X1
11/01/X1
Account Name
Machinery
Accounts Payable:
Jacana(pesos)
Debit
100,000
Contract Receivable-pesos
Contract Payable:AB Trader
102,000
100,000
102,000
12/31/X1
2,000
12/31/X1
1,000
Exchange Loss
Accounts Payable:
Jacana(pesos)
9,000
Contract Receivable-pesos
Unrealized Gain on Contract
6,000
01/30/X2
Credit
2,000
1,000
9,000
6,000
Cash-pesos
Contract payable:AB Trader
Contract Receivable-pesos
Cash
107,000
102,000
Accounts Payable:Jacana(pesos)
Cash-pesos
107,000
107,000
102,000
107,000
Exercise 9
Date
Nov 01
Dec 31
Jan 30
Direct Method
1W = $.001333
1W = $.001369
1W = $.001428
Indirect Method
$1 = W750
$1 = W730
$1 = W700
Inventory
Accounts Payable: Seoul
800,000
800,000
900,000
900,000
24,658
21,918
21,918
24,658
Account Payable:
600,000,000/W730 = $821,918
$821,918 - $800,000 = $21,918
Deposit Receivable:
675,000,000/W730 = $924,658
$924,658 - $900,000 = $24,658
01/30/X2
39,628
35,225
39,628
35,225
Account Payable:
600,000,000/W700 = $857,143
$857,143 - $821,918 = $35,225
Deposit Receivable:
675,000,000/W700 = $964,286
$964,286 - $924,658 = $39,628
2009 Pearson Education, Inc. publishing as Prentice Hall
12-21
01/30/X2
857,143
01/30/X2
Cash
Deposits Receivable: Tokyo
964,286
857,143
964,286
Exercise 10
Frigatebirds General Journal
11/1/X5
12/31/X5
Accounts receivable
Sales
Exchange rate loss
Accounts receivable
1,369,863
1,369,863
36,530
36,530
1,369,863-1,333,333=36,530
02/01/X6
Forward contract
Exchange rate gain
36,530
67,510
Forward contract
Exchange rate gain
67,510
36,530
67,510
67,510
1,333,333-1,265,823=67,510
Cash
Accounts receivable
Forward contract
1,369,863
1,265,823
104,040