Advanced Financial Accounting 11th Edition Christensen Test Bank

Chapter 11 - Multinational Accounting: Foreign Currency Transactions and Financial Instruments
Advanced Financial Accounting 11th

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Chapter 11
Multinational Accounting: Foreign Currency Transactions and Financial
Instruments
Multiple Choice Questions
1. If 1 British pound can be exchanged for 180 cents of U.S. currency, what fraction should be
used to compute the indirect quotation of the exchange rate expressed in British pounds?
A. 1/180
B. 1/.56
C. 1.8/1
D. 1/1.8
Answer: D
LO: 11-01
Topic: Direct versus Indirect Exchange Rates
Blooms: Understand
AACSB: Analytic
AICPA: FN Measurement
Difficulty: 2 Medium
The following data applies to Questions 2 - 4:

Suppose the direct foreign exchange rates in U.S. dollars are:
1 Singapore dollar = $0.7025
1 Cyprus pound = $2.5132
2. Based on the information given above, the indirect exchange rates for the Singapore dollar and
the Cyprus Pound (from a U.S. perspective) are:
11-1
A. 1.7655 Singapore dollars and 1.4235 Cyprus pounds respectively.

B. 0.2975 Singapore dollars and 1.5132 Cyprus pounds respectively.
C. 2.1622 Singapore dollars and 0.4625 Cyprus pounds respectively.
D. 1.4235 Singapore dollars and 0.3979 Cyprus pounds respectively.
Answer: D
LO: 11-01
Blooms: Understand
AACSB: Analytic
Difficulty: 1 Easy
11-2
3. Based on the information given above, how many U.S. dollars must be paid for a purchase of
citrus fruits costing 10,000 Cyprus pounds?
A. $25,132
B. $15,132
C. $3,979
D. $35,775
Answer: A
LO: 11-01
Blooms: Understand
AACSB: Analytic
Difficulty: 1 Easy
4. Based on the information given above, how many Singapore dollars are required to purchase
goods costing 10,000 US dollars?
A. 7,025
B. 14,235
C. 17,655
D. 2,975
Answer: B
LO: 11-01
Blooms: Understand
AACSB: Analytic
Difficulty: 1 Easy
The following data applies to Questions 5 – 7:

Suppose the direct foreign exchange rates in U.S. dollars are as follows:
1 Swiss franc = $1.0371
1 Swedish krona = $0.1526
5. Based on the information given above, the indirect exchange rates for the Swiss franc and the
Swedish krona (from a U.S. perspective) are
A. 0.9642 Swiss francs and 6.5531 Swedish krona respectively.
B. 1.6893 Swiss francs and 5.2563 Swedish krona respectively.
C. 1.0371 Swiss francs and 0.1527 Swedish krona respectively.
D. 0.8372 Swiss francs and 4.2713 Swedish krona respectively.
Answer: A
LO: 11-01
11-3

Blooms: Understand
AACSB: Analytic
Difficulty: 1 Easy
6. Based on the information given above, how many U.S. dollars must be paid for a purchase of
goods costing 20,000 Swedish krona?
A. $131,062
B. $20,742
C. $19,285
D. $3.052
Answer: D
LO: 11-01
Blooms: Understand
AACSB: Analytic
Difficulty: 1 Easy
7. Based on the information given above, how many Swiss francs are required to purchase goods
costing $5,000 U.S.?
A. 32,785
B. 5,186
C. 4,821
D. 763
Answer: B
LO: 11-01
Blooms: Understand
AACSB: Analytic
Difficulty: 1 Easy
8. Upon arrival in Chile, Karen exchanged $1,000 of U.S. currency into 480,000 Chilean Pesos.
While returning after her two month visit, she exchanged her remaining 50,000 Pesos into $100
of U.S. currency. What amount of gain or a loss did Karen experience on the 50,000 pesos she
held during her visit and converted to U.S. dollars at the departure date?
A. Loss of $4.
B. Gain of $4.
C. Loss of $6.
D. No gain or loss.
11-4
Answer: A
LO: 11-01
Topic: Changes in Exchange Rates
Blooms: Understand
AACSB: Analytic
9. Chicago based Corporation X has a number of importing transactions with companies based in
UK. Importing activities result in payables. If the settlement currency is the British Pound, which
of the following will happen by changes in the direct or indirect exchange rates?
Direct Exchange Rate Indirect Exchange Rate

Increases Decreases Increases Decreases
A. NA NA NA NA
B. Loss Gain Gain Loss
C. Loss Gain NA NA
D. Gain Loss Loss Gain
Answer: B
LO: 11-01
Blooms: Understand
AACSB: Reflective Thinking
AICPA: FN Decision Making
10. Chicago based Corporation X has a number of exporting transactions with companies based
in Sweden. Exporting activities result in receivables. If the settlement currency is the Swedish
Krona, which of the following will happen by changes in the direct or indirect exchange rates?

A. Loss Gain NA NA
C. NA NA NA NA
11-5
Answer: D
LO: 11-01
Blooms: Understand
11. Corporation X has a number of exporting transactions with companies based in Vietnam.
Exporting activities result in receivables. If the settlement currency is the US dollar, which of the
following will happen by changes in the direct or indirect exchange rates?

A. Loss Gain NA NA
C. NA NA NA NA
Answer: C
LO: 11-01
Blooms: Understand

Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian reals on
December 1, 20X8, with payment due on January 20, 20X9. The exchange rates were:
December 1, 20X8 1 real = $0.5435

December 31, 20X8 1 real = 0.5192
January 20, 20X9 1 real = 0.5305
12. Based on the preceding information, which of the following is true of dollar's movement vis-
à-vis Brazilian real during the period?
Dec 1 - 31 Jan 1 - 20
A. Dollar weakened Dollar strengthened
B. Dollar weakened Dollar weakened
C. Dollar strengthened Dollar strengthened
D. Dollar strengthened Dollar weakened
11-6
Answer: D
LO: 11-01
Blooms: Understand
13. Based on the preceding information, what is the Heavy's overall net gain or net loss from its
foreign currency exposure related to this transaction?
A. $4,860 loss
B. $2,600 loss
C. $9,018 gain
D. $2,260 gain
Answer: B
LO: 11-02
Topic: Basics of Foreign Currency Transactions
Blooms: Understand
AACSB: Analytic

Highland Company sold goods to an Egyptian company for 350,000 Egyptian pounds on
December 6, 20X3, with payment due on January 15, 20X4. The exchange rates were as
follows:
December 6, 20X3 1 Egyptian pound = $0.1593

December 31, 20X3 1 Egyptian pound = $0.1612
January 15, 20X4 1 Egyptian pound = $0.1604
14. Based on the preceding information, which of the following is true of the dollar’s movement
vis-à-vis the Egyptian pound during the period?
December 6 – 31 January 1 - 15
A. Dollar weakened Dollar strengthened
B. Dollar weakened Dollar weakened
C. Dollar strengthened Dollar strengthened
D. Dollar strengthened Dollar weakened
Answer: A
LO: 11-01
Blooms: Understand
11-7

15. Based on the preceding information, what is Highland’s overall net gain or net loss from its
foreign currency exposure related to this transaction?
A. $280 loss
B. $302 loss
C. $385 gain
D. $665 gain
Answer: C
LO: 11-02
Blooms: Understand
AACSB: Analytic
16. Mint Corporation has several transactions with foreign entities. Each transaction is
denominated in the local currency unit of the country in which the foreign entity is located. On
October 1, 20X8, Mint purchased confectionary items from a foreign company at a price of LCU
5,000 when the direct exchange rate was 1 LCU = $1.20. The account has not been settled as of
December 31, 20X8, when the exchange rate has decreased to 1 LCU = $1.10. The foreign
exchange gain or loss on Mint's records at year-end for this transaction will be:
A. $500 loss
B. $500 gain
C. $378 gain
D. $5,500 loss
Answer: B
LO: 11-02
Topic: Foreign Currency Import and Export Transactions
Blooms: Understand
AACSB: Analytic
11-8
17. Mint Corporation has several transactions with foreign entities. Each transaction is
denominated in the local currency unit of the country in which the foreign entity is located. On
November 2, 20X8, Mint sold confectionary items to a foreign company at a price of LCU
23,000 when the direct exchange rate was 1 LCU = $1.08. The account has not been settled as of
December 31, 20X8, when the exchange rate has increased to 1 LCU = $1.10. The foreign
exchange gain or loss on Mint's records at year-end for this transaction will be:
A. $460 loss
B. $387 loss
C. $387 gain
D. $460 gain
Answer: D
LO: 11-02
Blooms: Understand
AACSB: Analytic
18. On September 3, 20X8, Jackson Corporation purchases goods for a U.S. dollar equivalent of
$17,000 from a Swiss company. The transaction is denominated in Swiss francs (SFr). The
payment is made on October 10. The exchange rates were:
September 3: 1 Swiss franc = $0.85
October 10: 1 Swiss franc = 0.90
What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on
October 10?
A. Foreign Currency Transaction Loss 1,000

Accounts Payable (SFr) 1,000
B. Accounts Payable (SFr) 850

Foreign Currency Transaction Gain 850
C. Foreign Currency Transaction Loss 850

Accounts Payable (SFr) 850
D. Accounts Payable (SFr) 1,000

Foreign Currency Transaction Gain 1,000
11-9
Answer: A
LO: 11-02
Blooms: Understand
AACSB: Analytic
19. On March 1, 20X8, Wilson Corporation sold goods for a U.S. dollar equivalent of $31,000 to
a Thai company. The transaction is denominated in Thai baht. The payment is received on May
10. The exchange rates were:
March 1: 1 baht = $0.031
May 10: 1 baht = 0.034
What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on
May 10?
A. Accounts Receivable (baht) 93

B. Accounts Receivable (baht) 3,000

C. Foreign Currency Transaction Loss 3,000

Accounts Receivable (baht) 3,000
D. Sales 93
Answer: B
LO: 11-02
Blooms: Understand
AACSB: Analytic
11-10

On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi
Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is
denominated in Saudi riyals. Imperial's fiscal year ends on December 31, and its reporting
currency is the U.S. dollar. The exchange rates are:
December 5, 20X8 1 riyal = $0.265
December 31, 20X8 1 riyal = 0.262
January 10, 20X9 1 riyal = 0.264
20. Based on the preceding information, what journal entry would Imperial make on December
31, 20X8, to revalue foreign currency payable to equivalent U.S. dollar value?
A. Accounts Payable (SAR) 300

B. Accounts Payable (SAR) 100


Accounts Payable (SAR) 300
D. Foreign Currency Transaction Loss 200

Answer: A
LO: 11-02
Blooms: Understand
AACSB: Analytic
11-11
21. Based on the preceding information, what journal entry would Imperial make on January 10,
20X9, to revalue foreign currency payable to equivalent U.S. dollar value?
A. Accounts Payable (SAR) 300

B. Accounts Payable (SAR) 100


D. Foreign Currency Transaction Loss 200

Answer: D
LO: 11-02
Blooms: Understand
AACSB: Analytic
22. Based on the preceding information, what was the overall foreign currency gain or loss on
the accounts payable transaction?
A. $300 loss
B. $200 loss
C. $100 gain
D. $200 gain
Answer: C
LO: 11-02
Blooms: Understand
AACSB: Analytic
11-12

Spartan Company purchased interior decoration material from Egypt for 100,000 Egyptian
pounds on September 5, 20X8, with payment due on December 2, 20X8. Additionally, on
September 5, Spartan acquired a 90-day forward contract to purchase 100,000 Egyptian pounds
of E£ = $.1850. The forward contract was acquired to manage the exposed net liability position
in Egyptian pounds, but it was not designated as a hedge. The spot rates were:
September 5, 20X8 E£1 = $0.1835
December 2, 20X8 E£1 = $0.1865
23. Based on the preceding information, in the entry made on December 2nd to revalue foreign
currency receivable to current equivalent U.S. dollar value,
A. Accounts Payable will be debited for $18,350.
B. Foreign Currency Units will be debited for $18,500.
C. Foreign Currency Transaction Gain will be credited for $150.
D. Other Comprehensive Income will be credited for $300.
Answer: C
LO: 11-02
Blooms: Understand
AACSB: Analytic
24. Based on the preceding information, what is the entry required to settle foreign currency
payable on December 2?
A. Accounts Payable (E£) 18,800

Foreign Currency Units (E£) 18,800
B. Accounts Payable (E£) 18,500

C. Accounts Payable (E£) 18,650

D. Accounts Payable (E£) 18,350

11-13
Answer: C
LO: 11-02
Blooms: Understand
AACSB: Analytic
25. Detroit based Auto Corporation, purchased ancillaries from a Japanese firm on December 1,
20X8, for 1,000,000 Yen, when the spot rate for Yen was $.0095. On December 31, 20X8, the
spot rate stood at $.0096. On January 10, 20X9 Auto paid 1,000,000 Yen acquired at a rate of
$.0094. Auto's income statements should report a foreign exchange gain or loss for the years
ended December 31, 20X8 and 20X9 of:
20X8 20X9
A. $0 $0
B. $100 loss $200 gain
C. $0 $100 gain
D. $100 gain $100 loss
Answer: B
LO: 11-02
Blooms: Understand
AACSB: Analytic
26. On November 1, 20X8, Denver Company borrowed 500,000 local currency units (LCU)
from a foreign lender evidenced by an interest-bearing note due on November 1, 20X9, which is
denominated in the currency of the lender. The U.S. dollar equivalent of the note principal was
as follows:
7/1/X8 (date borrowed) $100,000
12/31/X8 (Denver’s year-end) 125,000
7/1/X9 (date repaid) 140,000
In its income statement for 20X9, what amount should Denver include as a foreign exchange
gain or loss on the note principal?
A. 15,000 gain
B. 25,000 gain
C. 15,000 loss
D. 40,000 loss
11-14
Answer: C
LO: 11-02
Blooms: Understand
AACSB: Analytic
27. Company X denominated a December 1, 20X9, purchase of goods in a currency other than
its functional currency. The transaction resulted in a payable fixed in terms of the amount of
foreign currency, and was paid on the settlement date, January 10, 2010. Exchange rates moved
unfavorably at December 31, 20X9, resulting in a loss that should:
A. be included as a separate component of stockholders' equity at Dec. 31, 20X9.
B. be included as a component of income from continuing operations for 20X9.
C. be included as a deferred charge at December 31, 20X9.
D. not be reported until January 10, 2010, the settlement date.
Answer: B
LO: 11-02
Blooms: Remember
AICPA: FN Reporting
Difficulty: 1 Easy
(Note: Question 23 is a Kaplan CPA Review Question)
28. On September 1, 20X1, Bain Corp. received an order for equipment from a foreign customer
for 300,000 local currency units (LCU) when the U.S. dollar equivalent was $96,000. Bain
shipped the equipment on October 15, 20X1, and billed the customer for 300,000 LCU when the
U.S. dollar equivalent was $100,000. Bain received the customer's remittance in full on
November 16, 20X1, and sold the 300,000 LCU for $105,000. In its income statement for the
year ended December 31, 20X1, Bain should report a foreign exchange gain of
A. $9,000
B. $4,000
C. $0
D. $5,000
Answer: D
LO: 11-02
Blooms: Apply
AACSB: Analytic
11-15
29. On September 22, 20X1, Yumi Corp. purchased merchandise from an unaffiliated foreign
company for 10,000 units of the foreign company's local currency. On that date, the spot rate was
$.55. Yumi paid the bill in full, six months later, on March 20, 20X2, when the spot rate was
$.65. The spot rate was $.70 on December 31, 20X1. What amount should Yumi report as a
foreign currency transaction loss in its income statement for the year ended December 31, 20X1?
A. $500
B. $0
C. $1,500
D. $1,000
Answer: C
LO: 11-02
Blooms: Apply
AACSB: Analytic
30. On November 6, 20X7, Zucor Corp. purchased merchandise from an unaffiliated foreign
company for 50,000 units of the foreign company’s local currency. On that date, the spot rate
was $1.259. Zucor paid the bill in full three months later when the spot rate was $1.258. The
spot rate was $1.255 on December 31, 20X7. What amount should Zucor report as a foreign
currency transaction gain in its income statement for the year ended December 31, 20X7?
A. $0
B. $50
C. $150
D. $200
Answer: D
LO: 11-02
Blooms: Apply
AACSB: Analytic
31. Hunt Co. purchased merchandise for 300,000 British pounds from a vendor in London on
November 30, 20X1. Payment in British pounds was due on January 30, 20X2. The exchange
rates to purchase one pound were as follows:
November 30, 20X1 December 31, 20X1
11-16
Spot-rate $1.65 $1.62

30-day rate 1.64 1.59
60-day rate 1.63 1.56
In its December 31, Year One, income statement, what amount should Hunt report as foreign
exchange gain?
A. $9,000
B. $12,000
C. $6,000
D. $0
Answer: A
LO: 11-02
Blooms: Apply
AACSB: Analytic
32. Sphinx Co. (Sphinx) records its transactions in U.S. dollars. A sale of goods resulted in a
receivable denominated in Japanese yen, and a purchase of goods resulted in a payable
denominated in Euros. Sphinx recorded a foreign exchange transaction gain on collection of the
receivable and an exchange transaction loss on the settlement of the payable. The exchange rates
are expressed as so many units of foreign currency to one dollar. Did the number of foreign
currency units exchangeable for a dollar increase or decrease between the contract and settlement
dates?
Yen exchangeable for $1 Euros exchangeable for $1

A. Decrease Increase
B. Increase Increase
C. Decrease Decrease
D. Increase Decrease
Answer: C
LO: 11-02
LO: 11-01
Blooms: Understand
AACSB: Analytic
Difficulty: 3 Hard
11-17
Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on
January 1, 20X9 with settlement to be in 60 days. On the same date, Myway entered into a 60-
day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to
manage its exposed foreign currency receivable. The forward contract is not designated as a
hedge. The spot rates were:
January 1 1 C$ = $0.945
March 1 1 C$ = 0.930
33. Based on the preceding information, the entry to revalue foreign currency payable to current
U.S. dollar value on March 1 will have:
A. a credit to Foreign Currency Transaction Gain for $1,500.
B. a debit to Foreign Currency Transaction Loss for $2,500.
C. a debit to Foreign Currency Transaction Loss for $1,500.
D. a credit to Foreign Currency Transaction Gain for $1,000.
Answer: D
LO: 11-03
Topic: Case 1: Not a Designated Hedging Instrument
Blooms: Understand
AACSB: Analytic
34. Based on the preceding information, what is the overall effect on net income of Myway's use
of the forward exchange contract?
A. Net loss of $1,000
B. Net gain of $1,500
C. Net loss of $500
D. No effect
Answer: C
LO: 11-03
Blooms: Understand
AACSB: Analytic
35. Based on the preceding information, had Myway not used the forward exchange contract, net
income for the year would have:
A. increased by $1,000.
B. increased by $500.
C. decreased by $1,000.
D. decreased by $1,500.
11-18
Answer: D
LO: 11-03
Blooms: Understand
AACSB: Analytic
The following data applies to Question 36 – 38:

Robert Company sold inventory to an Australian company for 50,000 Australian dollars on April
1, 20X0 with settlement to be in 60 days. On the same date, Robert entered into a 60-day
forward contract to sell 50,000 Australian dollars at a forward rate of $1.164 in order to manage
its exposed foreign currency receivable. The forward contract is not designated as a hedge. The
spot rates were as follows:
April 1 1 Australian dollar = $1.167

May 31 1 Australian dollar = $1.16
36. Based on the preceding information, the entry to revalue the foreign currency payable to
current U.S. dollar value on May 31 will include a
A. credit to Foreign Currency Transaction Gain for $350.
B. credit to Foreign Currency Transaction Gain for $200.
C. debit to Foreign Currency Transaction Loss for $550.
D. debit to Foreign Currency Transaction Loss for $350.
Answer: B
LO: 11-03
Blooms: Understand
AACSB: Analytic
37. Based on the preceding information, what is the overall effect on net income of Robert’s use
of the forward exchange contract?
A. No effect
B. Net loss of $150
C. Net loss of $200
D. Net gain of $350
Answer: B
LO: 11-03
Blooms: Understand
AACSB: Analytic
11-19
38. Based on the preceding information, had Robert not used the forward exchange contract,
what would have been the foreign currency transaction gain or loss for the year?
A. Gain of $200
B. Gain of $150
C. Loss of $350
D. Loss of $200
Answer: C
LO: 11-03
Blooms: Understand
AACSB: Analytic
11-20
39. Levin company entered into a forward contract to speculate in the foreign currency. It sold
100,000 foreign currency units under a contract dated November 1, 20X8, for delivery on
January 31, 20X9:
11/1/20X8 12/31/20X8
Spot rates $0.035 $0.037
30-day forward rate 0.034 0.036
In its income statement for the year ended December 31, 20X8, what amount of loss should
Levin report from this forward contract?
A. $0
B. $300
C. $200
D. $100
Answer: B
LO: 11-03
Topic: Case 4: Speculation in Foreign Currency Markets
Blooms: Understand
AACSB: Analytic

Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on
December 1, 20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company
also entered into a 60-day forward contract to purchase 100,000 Swiss francs. The forward
contract is not designated as a hedge. The rates were as follows:
Spot Rate Forward Rate

December 1, 20X8 $0.89 $0.90 (60 days)
December 31, 20X8 0.91 0.93 (30 days)
January 30, 20X9 0.92
40. Based on the preceding information, the entries on December 31, 20X8, include a:
A. Credit to Foreign Currency Payable to Exchange Broker, $4,000.
B. Debit to Foreign Currency Receivable from Exchange Broker, $6,000.
C. Debit to Foreign Currency Receivable from Exchange Broker, $186,000.
D. Debit to Foreign Currency Transaction Gain, $4,000.
11-21
Answer: B
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
41. Based on the preceding information, the entries on January 30, 20X9, include a:
A. Debit to Dollars Payable to Exchange Broker, $180,000.
B. Credit to Cash, $184,000.
C. Credit to Premium on Forward Contract, $4,000.
D. Credit to Foreign Currency Receivable from Exchange Broker, $180,000.
Answer: A
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
A. Credit to Foreign Currency Units (SFr), $184,000.
B. Credit to Cash, $180,000.
C. Debit to Foreign Currency Transaction Loss, $4,000.
D. Debit to Dollars Payable to Exchange Broker, $184,000.
Answer: B
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
A. Debit to Dollars Payable to Exchange Broker, $184,000.
B. Credit to Foreign Currency Transaction Gain, $4,000.
C. Credit to Foreign Currency Receivable from Exchange Broker, $180,000.
D. Debit to Foreign Currency Units (SFr), $184,000.
11-22
Answer: D
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard

Tinitoys, Inc., a domestic company, purchased inventory from a Brazilian company for 500,000
Brazilian reals (Br. reals) on May 1, 20X2. Payment is due on June 30, 20X2. On May 1, 20X2,
Tinitoys also entered into a 60-day forward contract to purchase 500,000 Brazilian reals. The
forward contract is not designated as a hedge. Tinitoys’ fiscal year ends on May 31. The direct
exchange rates were as follows:
Spot Rate Forward Rate

May 1, 20X2 $0.523 $0.525 (60 days)
May 31, 20X2 $0.516 $0.52 (30 days)
June 30, 20X2 $0.508
44. Based on the preceding information, the entries on May 31, 20X2, include a
A. credit to Foreign Currency Payable to Exchange Broker, $3,500.
B. debit to Foreign Currency Transaction Loss, $3,500.
C. credit to Foreign Currency Receivable from Exchange Broker, $2,500.
D. credit to Foreign Currency Receivable from Exchange Broker, $260,000.
Answer: C
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
45. Based on the preceding information, the entries on June 30, 20X2, include a
A. debit to Dollars Payable to Exchange Broker, $262,500.
B. credit to Cash, $254,000.
C. credit to Premium on Forward Contract, $6,000.
Answer: A
LO: 11-03
Blooms: Apply
AACSB: Analytic
11-23
Difficulty: 3 Hard
A. debit to Foreign Currency Transaction Loss, $4,000
B. credit to Foreign Currency Units (Br. reals), $262,500
C. credit to Cash, $262,500.
D. debit to Dollars Payable to Exchange Broker, $254,000
Answer: C
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
A. credit to Foreign Currency Transaction Gain, $6,000.B. debit to Dollars Payable to Exchange
Broker, $254,000.
C. debit to Foreign Currency Units (Br. reals), $254,000.
Answer: C
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard

On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to
sell 200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a
60-day speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.
The rates are as follows:
Forward Rate for Forward Rate for

Date Spot Rate Feb 1 Spot Rate Feb 1
December 1, 20X8 £1 = $1.76 $1.78 €1 = $1.40 $1.42
December 31, £1 = 1.73 1.74 €1 = 1.38 1.40
20X8
February 1, 20X9 £1 = 1.75 €1 = 1.41
11-24
Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.
48. Based on the preceding information, what is the effect of the British pound speculative
contract on 20X8 net income?
A. $10,000 gain
B. $6,000 gain
C. $8,000 gain
D. $2,000 loss
Answer: C
LO: 11-03
Blooms: Understand
AACSB: Analytic
49. Based on the preceding information, what is the overall effect of speculation on 20X8 net
income?
A. $4,000 gain
B. $6,000 gain
C. $8,000 loss
D. $8,000 gain
Answer: B
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
50. Based on the preceding information, what is the effect of the euro speculative contract on
20X9 net income?
A. $4,000 loss
B. $1,000 gain
C. $8,000 gain
D. $2,000 loss
11-25
Answer: B
LO: 11-03
Blooms: Understand
AACSB: Analytic
51. Based on the preceding information, what is the overall effect of speculation on 20X9 net
income?
A. $1,000 loss
B. $6,000 gain
C. $3,000 loss
D. $8,000 gain
Answer: A
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
52. Based on the preceding information, what is the net gain or loss on the British pound
speculative contract?
A. $8,000 gain
B. $6,000 gain
C. $3,000 loss
D. $10,000 gain
Answer: B
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
53. Based on the preceding information, what is the net gain or loss on the euro speculative
contract?
A. $8,000 gain
B. $6,000 gain
C. $3,000 loss
D. $1,000 loss
11-26
Answer: D
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
54. Which of the following observations is true of forward contracts?

A. Substantial margin is required to initiate a contract.
B. Must be completed either with the underlying's future delivery or net cash settlement.
C. Cannot be customized; for a specific amount at a specific date.
D. Usually settled with a net cash amount prior to maturity date.
Answer: B
LO: 11-03
Topic: Forward Exchange Contracts
Blooms: Remember
Difficulty: 1 Easy
11-27
55. On September 1, 20X1, Brady Corp. entered into a foreign exchange contract for speculative
purposes by purchasing 50,000 deutsche marks for delivery in 60 days. The rates to exchange $1
for 1 deutsche mark follow:
9/1/20X1 9/30/20X1
Spot-rate 0.75 0.70
In its September 30, 20X1 income statement, what amount should Brady report as foreign
exchange loss?
A. $1,000
B. $2,500
C. $1,500
D. $500
Answer: A
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
56. All of the following are true statements when measuring hedge effectiveness except:
A. Effectiveness means there is an approximate offset with the range of 80% to 125% of the
changes in the fair value of the cash flows
B. Effectiveness means there is an approximate offset in fair value to the risk being hedged.
C. A Company may elect to choose from several different measures for assessing hedge
effectiveness.
D. Effectiveness must be assessed at least annually when the company reports their annual
financial statements.
Answer: D
LO: 11-04
Topic: Measuring Hedge Effectiveness
Blooms: Remember
Difficulty: 1 Easy
11-28
57. All of the following are management tools available for a U.S. company to hedge its net
investment in a foreign affiliate except for:
A. Forward exchange contracts
B. Foreign currency commitments
C. Intercompany financing arrangements including intercompany transactions
D. None of the above.
Answer: D
LO: 11-04
Topic: Hedges of a Net Investment in a Foreign Entity
Blooms: Remember
Difficulty: 1 Easy

The fair market value of a near-month call option with a strike price of $45 is $5, when the stock
is trading at $48.
58. Based on the preceding information, which of the following is true of the intrinsic and time
values associated with this option.
Intrinsic Value Time Value
A) $5 $0
B) $0 $5
C) $3 $2
D) $2 $3
A. Option A
B. Option B
C. Option C
D. Option D
Answer: C
LO: Appendix 11B
Topic: Option Contracts
Blooms: Understand
AACSB: Analytic
59. Based on the preceding information, the call option:

A. has no intrinsic value currently.
B. is at the money.
C. is out of the money.
D. is in the money.
11-29
Answer: D
LO: Appendix 11B
Blooms: Understand
Difficulty: 1 Easy
60. An investor purchases a put option with a strike price of $100 for $3. This option is
considered “in the money” if the underlying is trading:
A. below $100.
B. at $100.
C. above $100.
D. above $103.
Answer: A
LO: Appendix 11B
Blooms: Remember
Difficulty: 1 Easy
61. Which of the following observations is true of futures contracts?

A. Contracted through a dealer, usually a bank.
B. Customized to meet contracting company's terms and needs.
C. Typically no margin deposit required.
D. Traded on an exchange and acquired through an exchange broker
Answer: D
LO: Appendix 11B
Topic: Futures Contracts
Blooms: Remember
Difficulty: 1 Easy
11-30
62. Company X issues variable-rate debt but wishes to fix its interest rates because it believes the
variable rate may increase. Company Y has a fixed-rate bond but is looking for a variable-rate
interest because it assumes the interest rates may decrease. The two companies agree to
exchange cash flows. Such an arrangement is called:
A. a futures contract.
B. a forward contract.
C. a swap.
D. an option.
Answer: C
LO: Appendix 11B
Topic: Swaps
Blooms: Understand
Difficulty: 1 Easy

Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-
risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil.
On November 30, 20X8, AMAR purchases call options for 20,000 barrels of oil at $100 per
barrel at a premium of $4 per barrel, with a February 1, 20X9, call date. The following is the
pricing information for the term of the call:
Futures Price
Date Spot Price (for Feb 1, 20X9, delivery)
November 30, 20X8 $100 $101
December 31, 20X8 105 106
February 1, 20X9 110
The information for the change in the fair value of the options follows:
Date Time Value Intrinsic Value Total Value

November 30, 20X8 $80,000 $0 $ 80,000
December 31, 20X8 30,000 100,000 130,000
February 1, 20X9 0 200,000 200,000
On February 1, 20X9, AMAR sells the options at their value on that date and acquires 20,000
barrels of oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112 per barrel.
11-31
63. Based on the preceding information, which of the following adjusting entries would be
required on December 31, 20X8?
A. Loss on Hedge Activity 30,000

Purchased Call Options 30,000
B. Loss on Hedge Activity 50,000

C. Loss on Hedge Activity 80,000

D. Loss on Hedge Activity 100,000

Answer: B
LO: Appendix 11B
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
64. Based on the preceding information, in the entry to record the increase in the intrinsic value
of the options on December 31, 20X8,
A. Purchased Call Options will be credited for $100,000.
B. Purchased Call Options will be debited for $130,000.
C. Retained Earnings will be credited for $100,000.
D. Other Comprehensive Income will be credited for $100,000.
Answer: D
LO: Appendix 11B
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
11-32
65. Based on the preceding information, which of the following entries will be required on
February 1, 20X9?
A. Loss on Hedge Activity 80,000

B. Purchased Call Options 100,000

Other Comprehensive Income 100,000
C. Cash 80,000
D. Oil Inventory 2,000,000

Cash 2,000,000
Answer: B
LO: Appendix 11B
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
66. Based on the preceding information, the entries made on April 1, 20X9 will include:
A. a debit to Other Comprehensive Income for $200,000.
B. a debit to Cost of Goods Sold for $2,240,000.
C. a credit to Oil Inventory for $2,240,000.
D. a credit to Cost of Goods Sold for $100,000.
Answer: A
LO: Appendix 11B
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard

On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost
of $40 per share. Winston classifies them as available-for-sale securities. On this same date, it
decides to hedge against a possible decline in the value of the securities by purchasing, at a cost
of $250, an at-the-money put option to sell the 100 shares at $40 per share. The option expires on
February 20, 20X9. Selected information concerning the fair values of the investment and the
options follow:
11-33
11-34
December 1, December 31, February 20,

20X8 20X8 20X9
Linked Corporation
Per Share: $40 ? ?
Put Option (100 shares)
Market Value $250 $400 $400
Intrinsic Value 0 ? 400
Time Value $ 250 $ 100 ?
Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9.
67. Based on the preceding information, what is the market price of Linked Corporation stock on
December 31, 20X8?
A. $40
B. $37
C. $36
D. $38
Answer: B
LO: Appendix 11B
Blooms: Understand
AACSB: Analytic
68. Based on the preceding information, what is the market price of Linked Corporation stock on
February 20, 20X9?
A. $35
B. $37
C. $36
D. $40
Answer: C
LO: Appendix 11B
Blooms: Understand
AACSB: Analytic
11-35
69. Based on the preceding information, the journal entry made on December 31, 20X8 to record
decrease in the time value of the options will include:
A. a debit to Loss on Hedge Activity for $150.
B. a credit to Put Option for $300.
C. a debit to Loss on Hedge Activity for $300.
D. a credit to Put Option for $100.
Answer: A
LO: Appendix 11B
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
70. Based on the preceding information, which of the following journal entries will be made on
February 20, 20X9?
A. Cash 4,000
Available-for-Sale Securities 4,000
B. Cash 4,000
Put Option 400
C. Loss on Hedge Activity 150

Put Option 150
D. Loss on Hedge Activity 400

Available-for-Sale Securities 400
Answer: B
LO: Appendix 11B
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
11-36
Essay Questions
71. Quantum Company imports goods from different countries. Some transactions are
denominated in U.S. dollars and others in foreign currencies. A summary of accounts receivable
and accounts payable on December 31, 20X8, before adjustments for the effects of changes in
exchange rates during 20X8, follows:
Accounts receivable:
In U.S. dollars $100,000
In 60,000 Swiss francs (SFr) $50,000
Accounts payable:
In U.S. dollars $86,000
In 10,000,000 yen (¥) $97,000
The spot rates on December 31, 208, were:

1 SFr = $0.85
1 Yen = $0.0095
The average exchange rates during the collection and payment period in 20X9 are:
1 SFr = $0.90
1 Yen = $0.0098
Required:
1. Prepare the adjusting entries on December 31, 20X8.
2. Record the collection of the accounts receivable and the payment of the accounts payable in
20X9.
3. What was the foreign currency gain or loss on the accounts receivable transaction
denominated in SFr for the year ended December 31, 20X8? For the year ended December 31,
20X9? Overall for this transaction?
4. What was the foreign currency gain or loss on the accounts receivable transaction
denominated in ¥? For the year ended December 31, 20X8? For the year ended December 31,
20X9? Overall for this transaction?
11-37
Problem 71 (continued):
Answer:
Accounts Payable (¥) 2,000

Adjust payable denominated in foreign

currency to current U.S. dollar equivalent
and recognize exchange gain:
$97,000 = Preadjusted Dec. 31, 20X8, value
-95,000 = ¥10,000,000 x $.0095, Dec. 31 spot rate
$2,000
Accounts Receivable (SFr) 3,000

Adjust receivable denominated in Swiss francs
to equivalent U.S. dollar value on settlement date:
$54,000 = SFr60,000 x $.90 20X9 collection date value
-51,000 = SFr60,000 x $.85 Dec. 31, 20X8 spot rate
$3,000
Cash 100,000
Foreign Currency Units (SFr) 54,000
Accounts Receivable (SFr) 54,000
Accounts Receivable ($) 100,000
Collect all accounts receivable.
Foreign Currency Transaction Loss 3,000

Accounts Payable (¥) 3,000
Adjust payable to equivalent U.S. dollar
value on settlement date:
$98,000 = ¥10,000,000 x $.0098 20X9 payment date value
-95,000 = ¥10,000,000 x $.0095, Dec. 31 spot rate
$3,000
11-38
3) Transaction gain/loss on SFr
December 31, 20X8 $1,000
December 31, 20X9 3,000
$4,000
4) Transaction gain/loss on ¥
December 31, 20X8 $2,000
December 31, 20X9 (3,000)
($1,000)
LO: 11-02
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
11-39
72. On December 1, 20X8, Secure Company bought a 90-day forward contract to purchase
200,000 euros (€) at a forward rate of €1 = $1.35 when the spot rate was $1.33. Other exchange
rates were as follows:
Spot Forward Rate for
Rate March 1, 20X9
December 31, 20X8 $1.34 $1.36
March 1, 20X9 1.33
Required
1. Prepare all journal entries related to Secure Company's foreign currency speculation from
December 1, 20X8, through March 1, 20X9, assuming the fiscal year ends on December 31,
20X8.
2. Did the company gain or lose on its purchase of the forward contract?
Answer:
1)
December 1, 20X8
Foreign Currency Receivable from Exchange Broker (€) 270,000
Dollars Payable to Exchange Broker ($) 270,000
Sign 90-day forward contract to receive 200,000 euros.
$270,000 = €200,000 x $1.35 forward rate
December 31, 20X8

Revalue speculative forward contract to
equivalent end-of-period U.S. dollar value:
$272,000 = €200,000 x $1.36 Dec. 31 forward rate
-270,000 = €200,000 x $1.35 Dec. 1 forward rate
$2,000 = €200,000 x ($1.36 - $1.35)
March 1, 20X9
Foreign Currency Transaction Loss 6,000
Revalue speculative forward contract using March 1 spot rate:
$266,000 = €200,000 x $1.33 March 31 spot rate
-272,000 = €200,000 x $1.36 Dec. 31 forward rate
$6,000 = €200,000 x ($1.36 - $1.33)
11-40
Cash 270,000
Deliver U.S. dollars to exchange broker.
Foreign Currency Units (€) 266,000

Receive euros from exchange broker.
$266,000 = €200,000 x $1.33
Cash 266,000
Foreign Currency Units (€) 266,000
Trade euros for dollars, at bank.
2. Secure Company experienced a net loss of $4,000 ($2,000 gain in 20X8 less a $6,000 loss in
20X9).
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
11-41
73. On December 1, 20X8, Denizen Corporation entered into a 120-day forward contract to
purchase 200,000 Canadian dollars (C$). Denizen's fiscal year ends on December 31. The
forward contract was to hedge a firm commitment agreement made on December 1, 20X8, to
purchase electronic goods on January 30, with payment due on March 31, 20X8. The derivative
is designated as a fair value hedge. The direct exchange rates follow:
Date Rate March 31, 20X9
December 1, 20X8 0.940 0.944
December 31, 20X8 0.945 0.947
January 30, 20X9 0.942 0.943
March 31, 20X9 0.941
Required:
Prepare all journal entries for Denizen Corporation.
Answer:
December 1, 20X8
Foreign Currency Receivable from Exchange Broker (C$) 188,800
Signed 120-day forward contract to hedge
foreign currency commitment to purchase
electronic goods on January 30 for C$200,000:
$188,800 = C$200,000 x $.944 forward rate
December 31, 20X8

Foreign Currency Receivable from Exchange Broker (C$) 600
Revalue foreign currency receivable to
fair value:
$189,400 = C$200,000 x $.947 Dec. 31 forward rate
-188,800 = C$200,000 x $.944 Dec. 1 forward rate
$ 600 = C$200,000 x ($.947 - $.944)
Foreign Currency Transaction Loss 600

Firm Commitment 600
Record the loss on the financial instrument
aspect of the firm commetment:
$ 600 = C$200,000 x ($.947 - $.944)
11-42
January 30, 20X9
Foreign Currency Receivable from
Exchange Broker (C$) 800
current U.S. dollar equivalent:
$188,600 = C$200,000 x $.943 Jan. 30, 20X9, forward rate
-189,400 = C$200,000 x $.947 Dec. 31, 20X8, forward rate
$ 800 = C$200,000 x ($.943 - $.947)
Firm Commitment 800

Record the gain on the financial instrument
aspect of the firm commitment
$ 800 = C$200,000 x ($.943 - $.947)
Inventory (or Purchase) 188,600

Firm Commitment 200
Accounts Payable (C$) 188,400
Acquire electronic goods initially
committed to on December 1, 20X8:
$188,400 = C$200,000 x $.942 spot rate
March 31, 20X9

Exchange Broker (C$) 400
Revalue foreign currency receivable:
$188,200 = C$200,000 x $.941 Mar. 31 spot rate
-188,600 = C$200,000 x $.943 Jan. 30 forward rate
$ 400 = C$200,000 x ($.941 - $.943)
Accounts Payable (C$) 200

Revalue foreign currency payable:
$188,200 = C$200,000 x $.941 Mar. 31 spot rate
-188,400 = C$200,000 x $.942 Jan 30 spot rate
$ 200 = C$200,000 x ($.941 - $.942)
11-43
Cash 188,800
Foreign Currency Units (C$) 188,200

Exchange Broker (C$) 188,200
Receive C$200,000 from broker in
accordance with forward contract
signed on December 1:
$188,200 = C$200,000 x $.941 Mar. 31 spot rate.

Deliver C$200,000 to foreign creditor.
LO: 11-03
Topic: Case 2: A Foreign Currency Fair Value Hedge
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
11-44
74. On December 1, 20X8, Denizen Corporation entered into a 120-day forward contract to
purchase 200,000 Canadian dollars (C$). Denizen's fiscal year ends on December 31. The
forward contract was to hedge an anticipated purchase of electronic goods on January 30, 20X9.
The purchase took place on January 30, with payment due on March 31, 20X9. The derivative is
designated as a cash flow hedge. The company uses the forward exchange rate to measure hedge
effectiveness. The direct exchange rates follow:
Date Rate March 31, 20X9
December 1, 20X8 0.940 0.944
December 31, 20X8 0.945 0.947
January 30, 20X9 0.942 0.943
March 31, 20X9 0.941
Required:
Prepare all journal entries for Denizen Corporation.
11-45
Answer:
December 1, 20X8
Foreign Currency Receivable from Exchange Broker (C$) 188,800
Signed 120-day forward contract as a cash
flow hedge of the forecasted foreign
currency transaction of the purchase of
electronic goods on January 30 for C$200,000:
$188,800 = C$200,000 x $.944 forward rate
11-46
December 31, 20X8

Other Comprehensive Income 600
fair value and record OCI for effective portion
of change in fair value of the derivative
designated as a cash flow hedge:
$189,400 = C$200,000 x $.947 Dec. 31 forward rate
-188,800 = C$200,000 x $.944 Dec. 1 forward rate
$ 600 = C$200,000 x ($.947 - $.944)
January 30, 20X9

current U.S. dollar equivalent and record OCI
for the effective portion of the change in fair
value of the derivative designated as a cash
flow hedge:
$188,600 = C$200,000 x $.943 Jan. 30, 20X9, forward rate
-189,400 = C$200,000 x $.947 Dec. 31, 20X8, forward rate
$ 800 = C$200,000 x ($.943 - $.947)
Inventory (or Purchases) 188,400

Acquire electronic goods and value at spot rate:
$188,400 = C$200,000 x $.942 spot rate
11-47
March 31, 20X8
Revalue foreign currency receivable and record
into OCI the effective portion of change in
fair value of derivative designated as a cash
flow hedge:
$188,200 = C$200,000 x $.941 Mar. 31 spot rate
-188,600 = C$200,000 x $.943 Jan. 30 forward rate
$ 400 = C$200,000 x ($.941 - $.943)
Accounts Payable (C$) 200

Revalue foreign currency payable
as specified by FASB 52:
$188,200 = C$200,000 x $.941 Mar. 31 spot rate
-189,400 = C$200,000 x $.942 Jan. 30 spot rate
$ 200 = C$200,000 x ($.941 - $.942)

In accordance with FASB 138, reclassify
amount from OCI sufficient to completely
offset the foreign currency transaction
gain on the foreign currency payable (C$)
that was hedged with a derivative
designated as a cash flow hedge.

Cash 188,800

Exchange Broker (C$) 188,200
Receive C$200,000 from broker in
accordance with forward contract signed on December 1:
$188,200 = C$200,000 x $.941 Mar. 31 spot rate.
11-48
LO: 11-03
Topic: Case 3: A Foreign Currency Cash Flow Hedge
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
75. On December 1, 20X8, Merry Corporation acquired 100 shares of Venus Corporation at a
cost of $60 per share. Merry classifies them as available-for-sale securities. On this same date, it
decides to hedge against a possible decline in the value of the securities by purchasing, at a cost
of $400, an at-the-money put option to sell the 100 shares at $60 per share. The option expires on
February 20, 20X9. Selected information concerning the fair values of the investment and the
options follow:
December 1 December 31 February 20
20X8 20X8 20X9
Venus Corporation
Per Share: $60 $55 $42
Put Option (100 shares)
Market value $400 $750 $1,800
Intrinsic value 0 500 1,800
Time value $400 $250 0
Assume that Merry exercises the put option and sells Venus shares on February 20, 20X9.
Required:
1. Prepare the entries required on December 1, 20X8, to record the purchase of the Venus stock
and the put options.
2. Prepare the entries required on December 31, 20X8, to record the change in intrinsic value and
time value of the options, as well as the revaluation of the available-for-sale securities.
3. Prepare the entries required on February 20, 20X8, to record the exercise of the put option and
the sale of the securities at that date.
11-49
Answer:
1)
December 1, 20X8
Cash 6,000
Purchase 100 shares of Venus at $60 per share.
Put Option 400

Cash 400
Purchase put options for 100 shares of Venus
at $60 per share at a cost of $400.
2)
December 31, 20X8
Put Option 500
Gain on Hedge Activity 500
Record increase in intrinsic value of put
options to current earnings.
Loss on Hedge Activity 500

Available-for-Sale Securities 500
Record decrease in fair value of hedged
available-for-sale securities to current
earnings, in accordance with FAS 133:
$500 = ($60 - $55) x 100 shares

Put Option 150
Record decrease in the time value of the options.
3)
February 20, 20X8
Put Option 1,300
Gain on Hedge Activity 1,300
Record increase in intrinsic value of put
options to current earnings.
11-50
Put Option 250
Record decrease in the time value of the options.
The options have now expired.
Cash 6,000
Put Option 1,800
Exercise the put option and sell securities
at option price of $60 per share.
LO: Appendix 11B

Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
11-51

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Chapter 11 - Multinational Accounting: Foreign Currency Transactions and Financial Instruments

Advanced Financial Accounting 11th

The following data applies to Questions 2 - 4:

1 Singapore dollar = $0.7025

1 Cyprus pound = $2.5132

A. 1.7655 Singapore dollars and 1.4235 Cyprus pounds respectively.

The following data applies to Questions 5 – 7:

1 Swiss franc = $1.0371

1 Swedish krona = $0.1526

Topic: Direct versus Indirect Exchange Rates

Direct Exchange Rate Indirect Exchange Rate

Direct Exchange Rate Indirect Exchange Rate

Direct Exchange Rate Indirect Exchange Rate

The following data applies to Questions 12 - 13:

December 1, 20X8 1 real = $0.5435

The following data applies to Questions 14 – 15:

December 6, 20X3 1 Egyptian pound = $0.1593

AACSB: Reflective Thinking

A. Foreign Currency Transaction Loss 1,000

B. Accounts Payable (SFr) 850

C. Foreign Currency Transaction Loss 850

D. Accounts Payable (SFr) 1,000

A. Accounts Receivable (baht) 93

B. Accounts Receivable (baht) 3,000

C. Foreign Currency Transaction Loss 3,000

The following data applies to Questions 20 - 22:

A. Accounts Payable (SAR) 300

B. Accounts Payable (SAR) 100

C. Foreign Currency Transaction Loss 300

D. Foreign Currency Transaction Loss 200

A. Accounts Payable (SAR) 300

B. Accounts Payable (SAR) 100

C. Foreign Currency Transaction Loss 100

D. Foreign Currency Transaction Loss 200

The following data applies to Questions 23 - 24:

A. Accounts Payable (E£) 18,800

B. Accounts Payable (E£) 18,500

C. Accounts Payable (E£) 18,650

D. Accounts Payable (E£) 18,350

(Note: Question 23 is a Kaplan CPA Review Question)

(Note: Question 29 is a Kaplan CPA Review Question)

(Note: Question 31 is a Kaplan CPA Review Question)

November 30, 20X1 December 31, 20X1

Spot-rate $1.65 $1.62

(Note: Question 32 is a Kaplan CPA Review Question)

Yen exchangeable for $1 Euros exchangeable for $1

The following data applies to Questions 33 - 35:

The following data applies to Question 36 – 38:

April 1 1 Australian dollar = $1.167

The following data applies to Questions 40 - 43:

Spot Rate Forward Rate

The following data applies to Questions 44 – 47:

Spot Rate Forward Rate

The following data applies to Questions 48 - 53:

The rates are as follows:

Forward Rate for Forward Rate for

54. Which of the following observations is true of forward contracts?

(Note: Question 55 is a Kaplan CPA Review Question)

The following data applies to Questions 58 - 59:

59. Based on the preceding information, the call option:

61. Which of the following observations is true of futures contracts?

The following data applies to Questions 63 - 66:

Date Time Value Intrinsic Value Total Value

A. Loss on Hedge Activity 30,000