Foreign

Transactions

1. On November 15, 20x4, CC Inc., a Philippine company, ordered merchandise FOB shipping
point from a German company for 200,000 foreign currency units (FCU). The
merchandise was shipped and invoice on December 10, 20x4. CC paid the invoice on
January 10, 20x5. The spot rates for FCU on the respective dates were:
November 15, 20x4 P .4955
December 10, 20x4 .4875
December 31, 20x4 .4675
January 10, 20x5 .4475

In CC’s December 31, 20x4, income statement, the foreign exchange gain is:


2. On July 1, 20x4, BY Company borrowed 1,680,000 local currency units (LCU) from a
foreign lender evidenced by an interest-bearing note due on July 1, 20x5, which is
denominated in the currency of the lender. The Philippine peso equivalent of the note
principal was as follows:
Date Amount
7/1/x4 (date borrowed) P210,000
12/31/x4 (BY’s year-end) 240,000
7/1/x5 (date repaid) 280,000
In its income statement for 20x5, what amount should BY include as a foreign exchange
gain or loss on the note principal?


3. Greco, Inc. a Philippine corporation, bought machine parts from Franco Company of
Germany on March 1, 20x4, for 70,000 foreign currency units (FCUs), when the spot rate
for FCU was P0.5395. Greco’s year-end was March 31, 20x4, when the spot rate for FCU
was P0.5445. Greco bought 70,000 FCUs and paid the invoice on April 20, 20x4, when the
spot rate was P0.5495.
How much should be shown in Greco’s income statements as foreign exchange (transaction)
gain or loss for the years ended March 31, 20x4 and 20x5?


4. Cassowary Corporation’s balance sheet at December 31, 20x3 included a P20,400
account receivable from foreign customer. The account receivable was denominated as
30,000 foreign currency units (FCUs). What entry did Cassowary make on January 16,
20x3 when the account receivable was collected and the exchange rate for 1 FCU was
P.67?
a. Cash 20,100
Accounts Receivable 20,100
b. Cash 20,100
Exchange Loss 300
Accounts Receivable 20,400
 c. Cash 20,400
Accounts Receivable 20,400
d. Cash 20,700
Accounts Receivable 20,400
Exchange Gain 300


5. Kettle Company purchased equipment for 375,000 FCUs (foreign currency units) from a
supplier in a foreign country on July 3, 20x4. Payment in FCU is due on Sept. 3, 20x4. The
exchange rates to purchase one FCU is as follows:

July 3 August 31, (year end) September 3
Spot-rate 1.58 1.55 1.54
30-day rate 1.57 1.53 --
60-day rate 1.56 1.49 --

On its August 31, 20x4, income statement, what amount should Kettle report as a foreign
exchange transaction gain:

6. On March 1, 20x4, Wilson Corporation sold goods for a peso equivalent of P31,000 to a
foreign supplier. The transaction is denominated in foreign currency (FC). The payment
is received on May 10. The exchange rates were:
March 1: 1 FC = P.31
May 10: 1 FC = P.34

What entry is required to revalue foreign currency payable to peso equivalent value on
May 10?
a. Account Receivable . . . . . . . . . . . . . . . . . . . . . . . . 93
Foreign Currency Transaction Gain . . . . . . . . . . 93
b. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Foreign Currency Transaction Gain . . . . . . . . . . 3,000
c. Foreign Currency Transaction Loss . . . . . . . . . . . . . . 3,000
Accounts Receivable . . . . . . . . . . . . . . . . . . . . 3,000
d. Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Foreign Currency Transaction Gain . . . . . . . . . . 93


7. On 12/12/x6, a domestic exporter sold inventory to a foreign company for 100,000 FCUs
(foreign currency units). On that date, the direct spot rate was P.20. At 12/31/x6, the
direct spot rate was P.24. On l/22/x7, when the direct spot rate was P.21, the domestic
exporter received full payment of 100,000 FCUs.

In the importer’s 20x6 financial statements, what should be reported as an FX gain or loss?


8. On 9/30/x6, a domestic importer acquired inventory from an Italian firm for 100,000
FCUs (foreign currency units). On that date, the direct spot rate was P.90. At l2/31/x6,
the direct spot rate was P.85. On l/7/x7, when the direct spot rate was P.93, the domestic
importer made full payment of 100,000 FCUs.

In the importer’s 20x6 financial statements, what should be reported as an FX gain or loss?


9. Greco, Inc. a Philippine corporation, bought machine parts from Franco Company of
foreign country on March 1, 20x4, for 70,000 foreign currencies (FCs), when the spot rate
for FC was P0.5395. Greco’s year-end was March 31, 20x4, when the spot rate for marks
FCs P0.5445. Greco bought 70,000 FCs and paid the invoice on April 20, 20x4, when the
spot rate was P0.5495.

How much should be shown in Greco’s income statements as foreign exchange (transaction)
gain or loss for the years ended March 31, 20x4 and 20x5?


Use the following information for questions 10 to 12.
RD Corporation purchases memory on March 15 from a Taiwanese company for 6,500,000
FCUs (Foreign Currency Units). Payment for the inventory occurs on May 15. The exchange
rate is 1 FCU = P.029 on March 15 and 1 FCU = P.025 on May 15.

10. What is the amount recorded on RD’s financial records for the inventory on March 15?

11. What is the amount on Exchange Gain or Loss recorded on RD’s financial records on May
15?

12. What is the credit to cash when RD pays for the inventory on May 15?


Use the following information for questions 13 to 15.
Wizard Corporation sells inventory on June 20 to a German company for 86,000 FCUs
(Foreign Currency Units). Payment occurs on August 10. The exchange rate on June 20 is 1
FCU = P1.016 and 1 FCU = P1.022 on August 10.

13. What is the amount recorded on Wizard’s financial records for the sale on June 20?

14. What is the amount on Exchange Gain or Loss recorded on Wizard’s financial records on
August 10?

15. What is the debit to cash when Wizard collects the Accounts Receivable on August 10?