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Exam 12: Accounting for Foreign Currency Transactions

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Question 1

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On November 1, 2014, American Company sold inventory to a foreign customer.The account will be settled on March 1 with the receipt of $500,000 foreign currency units (FCU).On November 1, American also entered into a forward contract to hedge the exposed asset.The forward rate is $0.70 per unit of foreign currency.American has a December 31 fiscal year-end.Spot rates on relevant dates were:

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Question 2

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The forward exchange rate quoted for the remaining term of a forward contract is used to account for the contract when the forward contract:

A) extends beyond one year or the current operating cycle.
B) is a hedge of an identifiable foreign currency commitment.
C) is a hedge of an exposed net liability position.
D) was acquired to speculate in foreign currency.

E) All of the above
F) None of the above

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Question 3

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Madison Paving Company purchased equipment for 350,000 British pounds from a supplier in London on July 7, 2014.Payment in British pounds is due on Sept.7, 2014.The exchange rates to purchase one pound is as follows: On its August 31, 2014 income statement, what amount should Madison Paving report as a foreign exchange transaction gain:

With respect to disclosure requirements for fair value measurements, which of the following is not be consistent with indicating negatives - I suggest bold and not underlining one of the three levels in the hierarchy of classifying fair value measurements?

The exchange rate quoted for future delivery of foreign currency is the definition of a(n) :

On September 1, 2014, Mudd Plating Company entered into two forward exchange contracts to purchase 250,000 euros each in 90 days.The relevant exchange rates are as follows: The second forward contract was strictly for speculation.On September 30, 2014, what amount of foreign currency transaction gain should Mudd Plating report in income?

From the viewpoint of a U.S.company, a foreign currency transaction is a transaction:

On April 1, 2014, Manatee Company entered into two forward exchange contracts to purchase 300,000 euros each in 90 days.The relevant exchange rates are as follows: The second forward contract was strictly for speculation.On April 30, 2014, what amount of foreign currency transaction gain should Manatee report in income.

A transaction gain is recorded when there is an:

A transaction gain or loss on a forward contract entered into as a hedge of an identifiable foreign currency commitment may be:

An indirect exchange rate quotation is one in which the exchange rate is quoted:

A transaction loss would result from:

A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a:

During 2014, a U.S.company purchased inventory from a foreign supplier.The transaction was denominated in the local currency of the seller.The direct exchange rate increased from the date of the transaction to the balance sheet date.The exchange rate decreased from the balance sheet date to the settlement date in 2015.For the years 2014 and 2015, transaction gains or losses should be recognized as:

Kettle Company purchased equipment for 375,000 British pounds from a supplier in London on July 3, 2014.Payment in British pounds is due on Sept.3, 2014.The exchange rates to purchase one pound is as follows: On its August 31, 2014, income statement, what amount should Kettle report as a foreign exchange transaction gain:

A transaction gain or loss at the settlement date is:

Montana Corporation a U.S.company, contracted to purchase foreign goods.Payment in foreign currency was due one month after delivery.Between the delivery date and the time of payment, the exchange rate changed in Montana's favor.The resulting gain should be reported in the financial statements as a(n) :

The discount or premium on a forward contract entered into as a hedge of an exposed asset or liability position should be:

On September 1, 2014, Mudd Plating Company entered into two forward exchange contracts to purchase 250,000 euros each in 90 days.The relevant exchange rates are as follows: The first forward contract was to hedge a purchase of inventory on September 1, payable on December 1.On September 30, what amount of foreign currency transaction loss should Mudd Plating report in income?

Greco, Inc.a U.S.corporation, bought machine parts from Franco Company of Germany on March 1, 2014, for 70,000 marks, when the spot rate for marks was $0.5395.Greco's year-end was March 31, 2014, when the spot rate for marks was $0.5445.Greco bought 70,000 marks and paid the invoice on April 20, 2014, when the spot rate was $0.5495.How much should be shown in Greco's income statements as foreign exchange (transaction) gain or loss for the years ended March 31, 2014 and 2015?