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Chapter 11 - Multinational Accounting: Foreign Currency Transactions and Financial Instruments
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:
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
11-1
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
11-2

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.
11-3
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
11-4
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
11-5
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
11-6

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
11-7
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
11-8
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
11-9

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
11-10
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
11-11

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

11-12
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
11-13
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
11-14
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
11-15
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
11-16
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.
11-17
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
11-18
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
11-19
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.
11-20
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.
11-21
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
11-22
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, 20X8 £1 = 1.73 1.74 €1 = 1.38 1.40
February 1, 20X9 £1 = 1.75 €1 = 1.41
11-23
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
11-24
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
11-25
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
11-26
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
11-27
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.
11-28
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
11-29
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.
11-30
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
11-31
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:
11-32
11-33
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
11-34
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
Available-for-Sale Securities 3,600
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
11-35
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?
11-36
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
11-37
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
11-38
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)
11-39
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 $6,000 loss in
20X9).
LO: 11-03
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
11-40
73. On December 1, 20X8, Denizen Corporation entered into a 120-day forward contract to
purchase 200,000 Canadian dollars (C$). 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 - $.944)
11-41
January 30, 20X9
Foreign Currency Receivable from
Exchange Broker (C$) 800
Revalue foreign currency receivable to
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 - $.942)
11-42
Cash 188,800
Deliver U.S. dollars to exchange broker.
Foreign Currency Units (C$) 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 $.941 Mar. 31 spot rate.
Accounts Payable (C$) 188,200

Foreign Currency Units (C$) 188,200
Deliver C$200,000 to foreign creditor.
LO: 11-03
Topic: Case 2: A Foreign Currency Fair Value Hedge
Blooms: Apply
AACSB: Analytic
Difficulty: 3 Hard
11-43
74. On December 1, 20X8, Denizen Corporation entered into a 120-day forward contract to
purchase 200,000 Canadian dollars (C$). 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.
11-44
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
11-45
Another random document with
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Pumping by Compressed Air. Although, generally speaking, the
raising of water by compressed air is not an economical method, it is
frequently adopted in mining and tunnelling where the use of steam
or electricity is objectionable. In these cases, cost of operation is a
minor factor, and it may be interesting to give a few particulars of this
form of pneumatic conveying.
The simplest form of compressed air pump consists of a closed
chamber or tank immersed in the water, to be raised or fixed at such
a level that the water will flow into the tank. An air pipe is connected
to the top of the chamber, and the rising main is carried inside the
tank to the bottom. On opening the air valve, pressure is exerted on
the surface of the water in the tank, and the water is expelled
through the lift pipe or rising main. On closing the air valve, water
again fills up the tank, and the process is repeated.
A decided improvement on this pump is the return air pump, which
consists of two closed chambers connected through valves with the
rising main. The compressed air pipe passes through a two-way
valve, either into one tank or the other, this valve being positively
operated. The method of working is similar to that of the single acting
pump, considering each chamber separately, but one tank is filling
while the other is being emptied.
The air expelled from the filling tank, instead of being discharged
to atmosphere, and part of its expansive power lost, is carried back
through the pipe, which would be the air intake pipe when
discharging, through a port in the two-way valve, and into the
compressor intake pipe. The air leaving the filling tank is naturally
above atmospheric pressure, and assists the piston on entering the
compressor, thus reducing the power absorbed in driving the latter.
Air-lift Pumping. The air-lift pump is a common means of
conveying by pneumatic means and should not be confused with the
above methods of raising water by compressed air.
In the air-lift method of pumping air under pressure is admitted at
the foot of a pipe already submerged in the well. The air does not
merely bubble through the water, as might be supposed, but passes
up the pipe as a mixture of air and water. The introduction of the air
into the rising column of water makes the latter as a whole less
dense than the water around the tube, and therefore we have a
difference in head between the internal and external columns of
water which will carry the internal column considerably higher than
the external column.
As the lifting force depends upon the “head” of water outside the
rising main, it follows that the maximum height to which the water
can be raised depends upon the depth to which the air pipe and
rising main are submerged below the standing level of the water in
the bore-hole. In other words, the greater the lift, the greater the
depth to which the air pipe must be carried before releasing the air
into the rising main.
Experience shows that the water pipe should be submerged 18
ins. for every 1 ft. lift above the water level in the bore-hole, and
allowance must be made for the “depression” of the water level in
the bore-hole, which will probably take place when pumping is in
progress. This depression will vary according to the water bearing
capacity of the strata, in which the hole has been bored, hence it is
necessary to go carefully into the conditions before boring the hole. If
available, data should be studied concerning the standing water
level, and the pumping depression in other bore-holes in the
immediate neighbourhood. Also tests should be made before the
boring machinery is removed because, although the initial depth of
bore-hole may be satisfactory on the basis of standing level
calculations, it may be found that when pumping the depression is so
great that the bore-hole has to be carried to a greater depth.
The air is supplied at a pressure suitable for the conditions, and
can be carried down a separate tube and connected to the rising
main at the correct depth (Fig. 33), or, as is often done, one pipe
may be lowered and the rising main supported centrally inside the
casing tube, the annular space between the two being used as the
air pipe (see Fig. 34).
The amount of free air required is from 0·6 to 1·0 cu. ft. per gallon
of water raised per min., provided that all the details have been
studied carefully and the design of the plant worked out accordingly.
If the air pipe is too small the air will bubble slowly through the
water, while if it is too large it will blow out with great force, spraying
and losing the water: the ratio between the cross-sectional area of
the air and water pipes is about 1½ to 4.
Advantages of air-lift pumping are that a greater amount of water
can be obtained from a hole of given size than by ordinary pumping;
and that one compressing plant can deal with several wells instead
of needing a separate pump to each well.
Fig. 33.—Air Pipe Outside

Riser.
Fig. 34.—Air between
Casing and Riser.
Air-lift Pumping
The disadvantages are, that the mechanical efficiency is low; that

a considerable amount of air is entrained in the water, and aerated
water is very unsuitable for boiler feed purposes; and that means
must be provided to allow air to escape by passing the discharge
from the pump over a weir or similar contrivance. It is necessary to
have some reliable form of oil trap between the compressor and the
well to prevent contamination of the water by oil carried over by the
air from the cylinders of the compressor; this is difficult, because the
oil is not only “atomized” but is actually vaporized while in the
compressor cylinders and as a gas it is difficult to reclaim. The air
must be kept as low in temperature as possible, and it is usually
passed through a cooler before being delivered down the well.
At times, air-lifts are installed for conveying other liquids to a
height, and when these can be treated at a high temperature it is
advisable, as the efficiency is then much improved. Even under
these conditions it is advisable to cool the air to the lowest feasible
temperature, before using it as a lifting medium.
When starting up, the column of water in the rising main has to be
moved as a solid column, and consequently a higher pressure of air
is required at starting than when the column has been set in motion,
as the water and air then pass up in alternative “pellets.”
In chemical works and allied industries this pneumatic method is
frequently used for pumping acids, and other corrosive liquids from
one place to another. Compressed air is a very handy medium for
this class of work as ordinary mechanical methods are ruled out, due
to the impossibility of introducing corrosive liquids into the pumps
and syphons unless great expense is incurred by the use of acid-
proof materials.
The air-lift is also very advantageous for pumping water which
contains a large amount of sand or similar gritty material which
would cut and score the walls of an ordinary piston pump. Air-lift
pumping is frequently used, therefore, on new bore-holes until the
sand, etc., has been eliminated, after which the final pump can be
installed without fear of damage.
The question of submergence will frequently make it impossible to
use air-lift without boring many feet deeper than would otherwise be
necessary, but when the water bearing strata is low this form of
pumping is frequently very convenient.
Miscellaneous Applications of Pneumatic Conveying. Several
other interesting applications of pneumatic conveying may be
enumerated but, being somewhat outside the primary scope of this
book, they will not be discussed in detail. The main object of the
author is to raise interest in the handling of solid materials in a
manner practically unknown to the general reader.
The housing problem has developed the pneumatic handling of
cement in a liquid form, and houses are now being built of reinforced
cement in the following manner. An expanded steel frame is
supported between concrete or brick piers, and on wood sheeting
where necessary, and liquid cement is blown on to the metal in the
form of a liquid spray: the first coat dries quickly and leaves a certain
amount of cement covering the framework. Then follows another
coat, and again another and so on, until the whole of the framework
has been covered to an appreciable thickness. The result is a thin
wall or slab of cement reinforced with the steel and of great
combined strength. Slightly domed roofs constructed in this manner
have proved very strong and durable.
The Aerograph is an instrument working on the same principle for
the application of paint, and it is used a great deal in the art world, in
the manufacture of Christmas cards, in panel painting, and in interior
decoration generally. Excellent “tones” and shades are obtained by
the simple method of varying the thickness of the colour or the
number of coats applied. It is usual to convey the surplus colour and
fumes away from the operator by means of a stream of air through a
special hood placed at the back of the work, thus maintaining clean
pure air for the operator.
A similar machine of more crude design is used for whitewashing
walls of stables, cattle pens, etc. All these plants comprise an air
compressor, either power or hand operated, from which the air is led
to a special injector which draws up through a second pipe a certain
amount of the material to be sprayed. The paint or other material is
then atomized and impelled with considerable force on to the surface
to be covered.
The sand blast is another application of pneumatic conveying in
which the medium conveyed is sand, which has well-known cutting
and erosive effects when it impinges on a surface at high velocity.
This plant is used for decorating glassware, obscuring sheet glass,
and also for cleaning stone buildings by the actual removal of the
face of the previously discoloured stone.
The pneumatic conveyance of energy is exemplified by rock drills,
riveting machines, coal-cutters and innumerable other portable tools.
Energy is expended in compressing air which is transmitted through
pipes and made to yield its stored energy by driving the air motors of
the tools or other apparatus in question.
Conclusion. Enough has been said to show that pneumatic
conveying has made great progress, and that the possibilities of this
method of dealing with the moving of solid materials are much
greater than has been generally recognized.
Almost anything that will enter a pipe up to about 9 ins. diameter
can be conveyed in this way, either by “blowing” or “suction” or by
the “induction” method.
Weight and size is an advantage rather than otherwise, and bricks
can be dealt with more successfully than flour. The writer’s
experience, in the results of actual working with pneumatic
conveying, indicates that no problem should be considered too
difficult to be tackled by this method, and that even the most unlikely
materials can be conveyed successfully by pneumatic means.
BIBLIOGRAPHY
Readers wishing to amplify their knowledge of pneumatic conveying

may find useful the following references—
“Pneumatic Dispatch,” by H. R. Kemp, M.I.C.E.,
M.I.E.E., M.R.M. Paper before the Inst. of Post Office
Engineers. October, 1909.
“Power Plant for Pneumatic Tubes in the Post Office,”
by A. B. Eason, M.A., A.M.I.E.E. Paper before the Inst. of
Post Office Engineers. 18th October, 1913.
“Portable Plant.” Editorial article in Cassier’s
Engineering Monthly, June, 1919.
“Pneumatic Handling Machinery.” Engineering and
Industrial Management, 5th June, 1919.
“History of Conveying,” by G. F. Zimmer, A.M.I.C.E.
Engineering and Industrial Management, July to Sept.,
1920.
“Boots as Power Users,” by E. G. Phillips, M.I.E.E.,
A.M.I.Mech.E., describing the coal handling plant used by
Messrs. Boots Pure Drug Co., Ltd., Nottingham. Power
User, March, 1920.
“Pneumatic Handling Installation for Calcium Sulphide,”
by G. F. Zimmer, A.M.I.C.E. Chemical Age, 10th April,
1920.
“Pneumatic Conveying of Granular Substances,
including Chemicals,” by G. S. Layton. Paper before the
Society of Chemical Industry, Third Conference
(Birmingham), 23rd April, 1920.
“Pneumatic Conveying of Coal and Similar Substances,”
by J. H. King, M.I.Mech.E. Paper before the Society of
Chemical Industry, Third Conference (Birmingham), 23rd
April, 1920.
Instructive catalogues on this and allied subjects are issued by the
following firms (amongst others): Messrs. Ashwell & Nesbit, Ltd.,
Leicester; R. Boby, Ltd., Bury St. Edmunds; H. J. King & Co.,
Nailsworth, Gloucester; The Lamson Store Pneumatic Co., Ltd.,
London; and The Sturtevant Engineering Co., Ltd., London.
INDEX
Advantages of system, 5
Aerograph, 101
Air compressors, 67, 70, 71
—— filters, 10, 21-27
—— induction, 63
—— lift, advantages, 97
—— ——, air required, 97
—— —— “depression,” 96
—— —— pumping, 95-100
—— —— submergence, 96, 100
—— receivers, 69
—— reheating, 68, 69
—— velocity, 36
“Aquadag,” 20
Ash handling, 58, 74-77
Bag filters, 22-24

Bends and elbows, 34, 35, 67
Bibliography, 105
“Blowing” system, 4
Breaking of materials, 34, 35, 67
Buffer boxes, 78
Capacity of pipe lines, 36

Cement handling plants, 101
Cleaning with air blast, 94
Coal-handling plants, 54-58, 60, 61
Comparative costs, 53
Conveying above atmospheric pressure, 6
—— below atmospheric pressure, 6
—— above and below atmospheric pressure, 6, 64-66
Cyclone separators, 21
Design, factors influencing, 8

Despatch tubes, 80, 81
Dischargers design, 10, 28-32, 56, 57
—— difficulties, 9
—— valves, 28, 31, 32, 56, 58
Exhausters, 10, 14
Factors influencing design, 8

Flexibility, 5
Flexible suction pipes, 36
Floating plants, 3, 46, 51, 59-61
Flue cleaning, 59
Foot power pumps, 86
Fundamental principles, 3
Grain-handling, 45, 47
Heavy commercial systems, 7

High pressure systems, 6, 39
Historical, 1, 2
“Induction” system, 4, 6, 62-66

“Intermittent” tube system, 81, 83
Junctions in pipe lines, 33
King’s exhauster, 10-14

—— three-way valve, 37
“Kinking” to be avoided, 92
Large pipe systems, 7

Lime washing, 101
Low pressure systems, 6
Lubrication, 20
Materials, breaking of, 34, 35, 67

Mollers’ air filter, 24
Nash hydro-turbine, 18, 19

Nozzles (suction), 10, 40-43
Oil contamination, 11
Pipe lines, 10, 33, 36, 39

—— ——, capacity of, 36
Pneumatic tube carriers, 81, 82
—— ——, “continuous,” 81, 83
—— —— foot power, 86
—— ——, “intermittent,” 81, 83
—— ——, power required, 84, 85
—— —— pressure system, 81, 85
—— —— vacuum system, 84
Portable quay-side plant, 5
—— railway plant, 49-51
—— vacuum cleaners, 92
Power required, 44
Pressure systems, 4, 6
Pumping by compressed air, 94, 95
Quayside plants, 51
Reheating compressed air, 68, 69

Rotary blowers, 14, 15
Sand-blasting, 102
Stationary plants, vacuum, 92
Steam consumption, 72-74
—— jet conveyors, 72, 74, 76
—— jets, 77
—— jets, economy of, 72, 73
Sturtevant blowers, 16, 17
“Suction” nozzles, 10, 40-43
—— systems, 4-7
Systems, advantages of, 5
Telescopic pipes, 38
Turbo-blowers, 11
Vacuum cleaners, 89
—— ——, tests, 92
—— required, 3
Valves in pipe line, 37
Velocity of air in pipes, 36
Water pumping, 95-100

Waterside plants, 45, 47, 48, 59
Wear of pipes and bends, 34, 35
Wet air filters, 25-27
Printed by Sir Isaac Pitman & Sons, Ltd., Bath, England

Transcriber’s Notes
pg 59 Changed: await the convenience of the wagons

to: await the convenience of the waggons
pg 69 Changed: practice to instal an efficient separator
to: practice to install an efficient separator
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Advanced Financial Accounting 11th

Edition Christensen Test Bank

The following data applies to Questions 2 - 4:

1 Singapore dollar = $0.7025

1 Cyprus pound = $2.5132

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