FOREIGN CURRENCY QUIZ

1. On August 1, 2021, a Philippine firm purchased a machine costing 200,000,000 foreign

currency units (FCU) from a foreign firm to be paid for on October 1, 2021. Also on August
1, 2021, the Philippine firm entered into a contract to purchase 200,000,000 FCU to be
delivered on October 1, 2021, at a forward rate of 1 FCU = P0.00783. The exchange rates
were as follows:
Spot
August 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 FCU = P0.00781
August 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 FCU = P0.00777
October 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 FCU = P0.00779

Which of the following statements is incorrect concerning the accounting treatment

of these transactions?
a. The machine's final recorded value was P1,558,000.
b. The beginning balance in the accounts payable was P1,562,000.
c. An exchange gain on the accounts payable of P4,000 was recognized on October 1,
2021.
d. The value of the accounts payable just before payment, on October 1, 2021, was
P1,558,000.

Use the following information for questions 2 and 3:

Spartan Company purchased interior decoration material from foreign supplier for 100,000
foreign currencies (FC) on September 5, 2021, with payment due on December 2, 2021.
Additionally, on September 5, Spartan acquired a 90-day forward contract to purchase 100,000
FC of 1 = P.1850. The forward contract was acquired to manage the exposed net liability
position in FC, but it was not designated as a hedge. The spot rates were:

September 5, 2021 . . . . . . . . . . . . . . FC1 = P0.1835

December 2, 2021 . . . . . . . . . . . . . . FC1 = P0.1865

2.  In the entry made on December 2nd to revalue foreign currency receivable to current
equivalent peso value, 
a. Accounts Payable will be debited for P18,350.
b. Foreign Currency Units will be debited for P18,500.
c. Foreign Currency Transaction Gain will be credited for P150.
d. Other Comprehensive Income will be credited for P300.

3.  Based on the preceding information, what is the DEBIT entry (ACCOUNT AND
AMOUNT) required to settle foreign currency payable on December 2?

4. On January 15, a Philippine company purchases merchandise from a foreign supplier for
1,000,000 foreign currency (FC) , when the spot rate is P0.15/1 FC On the same date, it
enters a forward contract for delivery of FC 1,000,000 on March 15, at a price of P0.148/FC.
On March 15, when the spot and forward rate for March 15 delivery are P0.156/FC, the
company closes the forward contract and pays for the merchandise. The merchandise has
not yet been sold at March 15. What amount, in pesos, does the company pay for the
merchandise? At what amount, in pesos, does the merchandise appear on the
company’s March 15 balance sheet?

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 Amount paid Merchandise balance
a. P148,000 P148,000
b. P148,000 P150,000
c. P156,000 P150,000
d. P150,000 P156,000

5. A Philippine company issues a purchase order for merchandise to a foreign supplier. The
agreed upon total price is 1,200,000 foreign currency units (FCU), and the current spot rate
is P1/FC 1. Suppose the company enters a forward contract when the purchase order is
issued, at a rate of P0.95/FC 1, for delivery when the merchandise is received. If the spot
rate rises to P1.05 when the merchandise is received and paid for, at what value will
the merchandise be reported on the company’s books?
a. P1,020,000 c. P1,200,000
b. P1,140,000 d. P1,260,000

Use the following Information for Questions 6 to 9:

Taste Bits Inc. purchased chocolates from foreign supplier for 200,000 foreign currencies (FC)
on December 1, 2021. Payment is due on January 30, 2022. On December 1, 2021, the
company also entered into a 60-day forward contract to purchase 200,000 FC. The forward
contract is not designated as a hedge. The rates were as follows:

Spot Rate Forward Rate

December 1, 2021 P0.89 P0.90 (60 days)
December 31, 2021 0.91 0.93 (30 days)
January 30, 2022 0.92

 6.  The entries on December 31, 2021, include a: 

a. Credit to Foreign Currency Payable to Exchange Broker, P4,000.
b. Debit to Foreign Currency Receivable from Exchange Broker, P6,000.
c. Debit to Foreign Currency Receivable from Exchange Broker, P186,000.
d. Debit to Foreign Currency Transaction Gain, P4,000.

7.   The entries on January 30, 2022, include a: 

a. Debit to Pesos Payable to Exchange Broker, P180,000.
b. Credit to Cash, P184,000.
c. Credit to Premium on Forward Contract, P4,000.
d. Credit to Foreign Currency Receivable from Exchange Broker, P180,000.

8.  The entries on January 30, 2022, include a: 

a. Credit to Foreign Currency Units, P184,000.
b. Credit to Cash, P180,000.
c. Debit to Foreign Currency Transaction Loss, P4,000.
d. Debit to Pesos Payable to Exchange Broker, P184,000.

9.  The entries on January 30, 2022, include a: 

a. Debit to Pesos Payable to Exchange Broker, P184,000.
b. Credit to Foreign Currency Transaction Gain,P4,000.
c. Credit to Foreign Currency Receivable from Exchange Broker, P180,000.

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 d. Debit to Foreign Currency Units, P184,000.
10. On September 1, 2021, Philippine Company entered into a foreign exchange contract for
speculative purposes by purchasing 50,000 foreign currencies (FCs) for delivery in 60 days.
The rates to exchange pesos for FCs follow:
  9/1/21   9/30/21
Spot rates . . . . . . . . . . . . . . P. 75 P0.70
30- day forward rate . . . . 0.73 0.72
90- day forward rate . . . . 0.74   0.73

In its September 30, 2021, income statement, what amount should JS report as
foreign exchange loss (SUPPLY YOUR ANSWER)

Use the following information for questions 11 and 12:

11. On September 1, 2021, Mudd Plating Company entered into two forward exchange
contracts to purchase 250,000 foreign currencies (FCs) each in 90 days. The relevant
exchange rates are as follows:
Spot rate Forward rate For Dec. 1, 2021
September 1, 2021 1.46 1.47
September 30, 2021 (year-end)1.50 1.48

The first forward contract was to hedge a purchase of inventory on September 1, payable on
December 1. On September 30, what amount of foreign currency transaction loss
should Mudd Plating report in income? (SUPPLY YOUR ANSWER)

12. The second forward contract was strictly for speculation. On September 30, 2021,
what amount of foreign currency transaction gain should Mudd Plating report in
income?
(SUPPLY YOUR ANSWER)

13. On November 1, 2021, National Company sold inventory to a foreign customer. The account
will be settled on March 1 with the receipt of 200,000 foreign currency units (FCU). On
November 1, National also entered into a forward contract to hedge the exposed asset. The
forward rate is P0.80 per unit of foreign currency. National has a December 31 fiscal year-
end. Spot rates on relevant dates were:
Date Per unit of Foreign Currency
November 1 P0.83
December 31 0.81
March 1 0.84

What will be the adjusted balance in the Accounts Receivable account on December
31, and how much gain or loss was recorded as a result of the adjustment?
Receivable Balance Gain/Loss Recorded
a. P170,000 P4,000 gain
b. P162,000 P4,000 loss
c. P168,000 P2,000 gain
d. P164,000 P2,000 loss

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Use the following information for questions 14 and 15:
On April 1, 2021, Manatee Company entered into two forward exchange contracts to purchase
300,000 foreign currencies (FCs) each in 120 days. The relevant exchange rates are as follows:
Forward Rate
Spot rate For Aug. 1, 2021
April 1, 2021 1.16 1.17
April 30, 2021 (year-end) 1.20 1.18
14. The first forward contract was to hedge a purchase of inventory on April 1, payable on
December 1. On April 30, what amount of foreign currency transaction NET GAIN(LOSS)
should Manatee report in income? (SUPPLY YOUR ANSWER)

15. The second forward contract was strictly for speculation. On April 30, 2021, what amount of
foreign currency transaction gain should Manatee report in income. (SUPPLY YOUR
ANSWER)

16. On November 1, 2021, Cone Company sold inventory to a foreign customer. The account
will be settled on March 1 with the receipt of 250,000 foreign currency units (FCU). On
November 1, Cone also entered into a forward contract to hedge the exposed asset. The
forward rate is P0.90 per unit of foreign currency. Cone has a December 31 fiscal year-end.
Spot rates on relevant dates were:
Date Per Unit of Foreign Currency
November 1 P0.93
December 31 0.91
March 1 0.94

The entry to record the forward contract on Nov 1 is

a. FCU Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,000

Premium on Forward Contract . . . . . . . . . . . . . . . . . . 7,500
Pesos Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232,500
b. Pesos Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232,500
Discount on Forward Contract . . . . . . . . . . . . . . 7,500
FCU Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,000
c. FCU Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232,500
Discount on Forward Contract . . . . . . . . . . . . . . 7,500
Pesos 225,000
Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
d. Pesos receivable from exchange broker. . . . . . . . . . 225,000
FCU Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,000

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17. Pile, Inc. purchased merchandise for 500,000 FC from a foreign vendor on November 30,
2021. Payment in foreign currency is due January 31, 2022. On the same day, Pile signed
an agreement with a foreign exchange broker to buy 500,000 FC on January 31, 2022.
Exchange rates to purchase 1 FC are as follows:
Nov. 30, 2021 Dec. 31, 2021 Jan. 31, 2022
Spot . . . . . . . . . . . . . . . . . . . . P1.49 P1.45 P1.44
30 day . . . . . . . . . . . . . . . . . . P1.48 P1.43 P1.43
60 day . . . . . . . . . . . . . . . . . . P1.46 P1.41 P1.42

What will be the adjustment to the account payable included in the journal entry
record on November 30, 2021?
a. P20,000 debit c. P30,000 debit
b. P20,000 credit d. P-0-

LONG PROBLEM 1
On January 1, 2020, Original Pilipino Music (OPM), a manufacturer of high-end recording
equipment based in a foreign country, shipped 120,000 FCU (foreign currency units) worth of
inventory to its main foreign distributor, with full payment of these goods to be paid by February
28, 2020. OPM has a January 31 year end. A list of significant dates and exchange rates is
shown below.

Transaction Date: January 1, 2020 FCU 1= P1.1410

Year-End Date: January 31, 2020 FCU 1= P1.1420
Settlement Date: February 28, 2020 FCU 1= P1.1450

The invoice price billed by OPM was 120,000 FCUs

18. At what value did OPM record the initial sale to its American distributor?
19. What is the amount of cash received by OPM on the settlement date?
20. What is the amount of OPM’s foreign exchange gain or (loss) on February 28th?

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LONG PROBLEM 2
Cleared Corp. owns a subsidiary in Singapore whose Statement of Financial Position in
Singapore Dollars for the last two years follow:

Dec 31, 2020 Dec 31, 2021

Assets

Cash and Cash equivalents S$ 90,000 S$ 75,000

Receivables 367,500 442,500

Inventory 480,000 510,000

Property and Equipment, net 765,000 690,000

Total Assets S$ 1,702,500 S$ 1,717,500

Liabilities and Equity

Accounts Payable S$ 165,000 S$ 225,000

Long-term debt 967,500 855,000

Common stock 345,000 345,000

Retained earnings 225,000 292,500

Total Liabilities and Equity S$ 1,702,500 S$ 1,717,500

Relevant exchange rates are:

January 1, 2020 S$ 1 = P 45

December 31, 2020 S$ 1 = P 42.50

December 31, 2021 S$ 1 = P 47.50

Average 2020 S$ 1 = P 43.75

September 12, 2020 S$ 1 = P 40

Cleared formed the subsidiary on January 1, 2020. Income of the subsidiary was earned evenly
throughout the years and the subsidiary declared dividends worth S$15,000 on September 12,
2020 and none were declared during 2021.

21. Compute the cumulative translation adjustment in 2021

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