Tải bản đầy đủ

advanced accounting test bank chapter 07 susan hamlen

TEST BANK
CHAPTER 7
Foreign Currency Transactions and Hedging
MULTIPLE CHOICE
1.

Topic: Valuation of forward contracts
LO 3
A U.S. company invests in a forward purchase contract for 100,000,000 yen with a
purchase price of $0.009/yen, for delivery in 45 days. The spot rate at the time the
contract is initiated is $0.0085/yen. At the end of the accounting year, the forward
contract is still outstanding. The year-end spot rate is $0.0088/yen. The year-end forward
rate for delivery at the contract date is $0.0092/yen. How is the forward contract
reported on the U.S. company’s balance sheet?
a.
b.
c.
d.

$20,000 asset
$20,000 liability

$30,000 asset
$30,000 liability

ANS: a
($0.0092 - $0.009) x 100,000,000 = $20,000
2.

Topic: Cash flow hedge
LO 6
On August 1, a U.S. company enters into a forward contract, in which it agrees to buy
1,000,000 euros from a bank at a rate of $1.115 on December 1. Changes in the value of
the forward contract will be reported in other comprehensive income on the balance sheet
in which one of the following situations?
a.
b.
c.
d.

The U.S. company has receivables denominated in euros, with payment to be
received on December 1.
The U.S. company sold merchandise to a customer in Belgium on August 1, and
expects payment of 1,000,000 euros on December 1.
The U.S. company plans to sell merchandise to a customer in Belgium on August
1, with payment of 1,000,000 euros expected on December 1.
The U.S. company plans to purchase merchandise from a supplier in Belgium, with
payment of 1,000,000 euros expected to be paid on December 1.

ANS: d

Test Bank, Chapter 7

©Cambridge Business Publishers, 2010
1


Use the following information on the U.S. dollar value of the euro to answer questions 3 – 7
below:

October 30, 2010
December 31, 2010


April 30, 2011

Spot rate
$ 1.25
1.28
1.26

Forward rate for
April 30, 2011
delivery
$ 1.30
1.32
1.26

On October 30, 2010, a company enters a forward contract to sell €100,000 on April 30, 2011.
The company’s accounting year ends December 31.
3.

Topic: Hedge of export transaction
LO 4
The forward contract hedges an outstanding €100,000 account receivable due on April 30.
What is the net effect on income in 2010 and 2011?
a.
b.
c.
d.

2010
$1,000 gain
$1,000 loss
$3,000 gain
$2,000 loss

2011
$4,000 gain
$4,000 gain
$6,000 gain
$6,000 gain

ANS: a
2010: Gain on receivable, ($1.28 - $1.25) x €100,000
Loss on forward, ($1.32 - $1.30) x €100,000
Net gain

= $3,000
= $2,000
$1,000

2011: Loss on receivable, ($1.28 - $1.26) x €100,000
Gain on forward, ($1.32 - $1.26) x €100,000
Net gain

= $2,000
= $6,000
$4,000

©Cambridge Business Publishers, 2010
2
Edition

Advanced Accounting, 1st


4.

Topic: Hedge of firm commitment
LO 5
The forward contract hedges a sales order for €100,000, received October 30. The sale
was made and the €100,000 collected on April 30, 2011. Sales revenue recorded on April
30 is:
a.
b.
c.
d.

$126,000
$122,000
$130,000
$124,000

ANS: c
(€100,000 x $1.26) + ($1.30 - $1.26) x €100,000 = $130,000
5.

Topic: Hedge of firm commitment
LO 5
The forward contract hedges a sales order for €100,000, received October 30. The sale
was made and the €100,000 collected on April 30, 2011. The net effect on 2010 income
is:
a.
b.
c.
d.

No effect
$2,000 loss
$3,000 gain
$1,000 gain

ANS: a
The gain on the firm commitment and loss on the forward contract are ($1.32 - $1.30) x
€100,000 = $2,000, and they offset for a zero effect on 2010 income.

Test Bank, Chapter 7

©Cambridge Business Publishers, 2010
3


6.

Topic: Hedge of forecasted transaction
LO 6
The forward contract hedges a forecasted sale for €100,000, expected at the end of April
2011. The net effect on 2010 income is:
a.
b.
c.
d.

No effect
$2,000 loss
$3,000 gain
$1,000 gain

ANS: a
The loss on the forward contract is reported in other comprehensive income.
7.

Topic: Hedge of forecasted transaction
LO 6
The forward contract hedges a forecasted sale for €100,000, expected at the end of April
2011. The sale takes place on April 30, 2011, €100,000 is collected, and the forward
contract is closed. Which statement is true, concerning the sale on April 30, 2011?
a.
b.
c.
d.

The $1,000 total loss on the forward contract is reclassified from other
comprehensive income as an adjustment to sales revenue.
The $4,000 total gain on the forward contract is reclassified from other
comprehensive income as an adjustment to sales revenue.
The 2011 $6,000 gain on the forward contract is recognized as a hedging gain on
the 2011 income statement.
The 2010 $2,000 loss on the forward contract is recognized as a hedging loss on
the 2010 income statement.

ANS: b
The total gain on the forward contract is ($1.30 - $1.26) x €100,000 = $4,000. Changes
in the value of the forward are reported in other comprehensive income until the hedged
forecasted transaction is reported in income. In this case, the forecasted transaction
results in sales revenue, reported in 2011.

©Cambridge Business Publishers, 2010
4
Edition

Advanced Accounting, 1st


8.

Topic: Export transaction
LO 2
On May 20, 2012, when the spot rate is $1.30/€, a company sells merchandise to a
customer in Italy. The spot rate is $1.31/€ on June 30, the company’s year-end. Payment
of €100,000 is received on July 30, 2012, when the spot rate is $1.28/€. What is the effect
on fiscal 2012 and 2013 income?
a.
b.
c.
d.

Fiscal 2012
$1,000 exchange loss
$1,000 exchange gain
No effect
No effect

Fiscal 2013
$3,000 exchange gain
$3,000 exchange loss
$2,000 exchange loss
$2,000 exchange gain

ANS: b
Fiscal 2012 exchange gain = ($1.31 - $1.30) x €100,000 = $1,000
Fiscal 2013 exchange loss = ($1.31 - $1.28) x €100,000 = $3,000
9.

Topic: Import transaction
LO 2
On May 20, 2012, when the spot rate is $1.30/€, a company purchases merchandise from
a supplier in Italy. The spot rate is $1.31/€ on June 30, the company’s year-end. Payment
of €100,000 is made on July 30, 2012, when the spot rate is $1.28/€. What is the effect on
fiscal 2012 and 2013 income?
a.
b.
c.
d.

Fiscal 2012
$1,000 exchange loss
$1,000 exchange gain
No effect
No effect

Fiscal 2013
$3,000 exchange gain
$3,000 exchange loss
$2,000 exchange loss
$2,000 exchange gain

ANS: a
Fiscal 2012 exchange loss = ($1.31 – $1.30) x €100,000 = $1,000
Fiscal 2013 exchange gain = ($1.31 – $1.28) x €100,000 = $3,000

Test Bank, Chapter 7

©Cambridge Business Publishers, 2010
5


Data for questions 10 and 11 are as follows:
On September 8, the Sealy Company purchased cotton at an invoice price of €20,000, when the
exchange rate was $1.32/€. Payment was to be made on November 8. On November 8, Sealy
purchased the €20,000 for $1.30/€, and paid the invoice.
10.

Topic: Import transaction
LO 2
The cotton should be valued in Sealy's inventory at:
a.
b.
c.
d.

$20,000
$25,600
$26,000
$26,400

ANS: d
€20,000

11.

x $1.32 = $26,400

Topic: Import transaction
LO 2
The exchange gain or loss recognized by Sealy as a result of this transaction is:
a.
b.
c.
d.

No gain or loss
$400 gain
$400 loss
$1,667 gain

ANS: b
€20,000 x ($1.32 - $1.30) = $400 gain

©Cambridge Business Publishers, 2010
6
Edition

Advanced Accounting, 1st


Data for questions 12 and 13 are as follows:
On June 5, Teneco Corporation sold merchandise at an invoice price of €100,000, when the
exchange rate was $1.36/€. Payment was to be received on August 16. On August 16, the
customer paid the €100,000. The exchange rate on that date was $1.39/€.
12.

Topic: Export transaction
LO 2
The sale should be reported on Teneco's books at:
a.
b.
c.
d.

$136,000
$139,000
$ 73,530
$ 71,942

ANS: a
€100,000 x $1.36 = $136,000
13.

Topic: Export transaction
LO 2
The exchange gain or loss recognized by Teneco as a result of this transaction is:
a.
b.
c.
d.

-0$3,000 gain
$3,000 loss
$3,919 loss

ANS: b
€100,000 x ($1.39 - 1.36) = $3,000 gain

Test Bank, Chapter 7

©Cambridge Business Publishers, 2010
7


14.

Topic: Analysis of foreign currency risks
LO 3
A U.S. exporter has made a sale to a customer in another country. The customer is
obligated to remit payment in his local currency in 90 days. The direct spot rate is now
$1.54. The 90-day forward rate is $1.60. At which spot rate at the time the customer
remits payment would the company have been better off not hedging the export
transaction with a forward contract?
a.
b.
c.
d.

$1.52
$1.54
$1.59
$1.62

ANS: d
Any rate above $1.60 leads to higher U.S. dollar value of payment received than under the
forward contract.
15.

Topic: Foreign currency options
LO 3
A company invests $200 in a foreign exchange option with the following terms: The
company may purchase 1,000,000 zloty at a price of $.25/zloty on December 20, 2014.
Which statement is true?
a.
b.
c.
d.

If the spot price for zloty is $.36 on December 20, the company will gain $359,800
on the option.
If the spot price for zloty is $.24 on December 20, the company will lose $200 on
the option.
If the spot price for zloty is $.27 on December 20, the company will lose $20,200
on the option.
If the spot price for zloty is $.30 on December 20, the company will gain $24,800
on the option.

ANS: b
The option gives the holder the option to buy 1,000,000 zloty for $250,000. At a spot
price of $.24/zloty, the option has no value and the holder loses its $200 investment.

©Cambridge Business Publishers, 2010
8
Edition

Advanced Accounting, 1st


16.

Topic: Hedge of import transaction
LO 4
A U.S. import company purchases boomerangs from an Australian supplier on October 1,
2013 for 100,000 Australian dollars (A$), payable February 1, 2014. On October 1, 2013,
the company enters into a forward contract to hedge the foreign currency risk resulting
from this purchase. Exchange rates are as follows:

October 1, 2013
December 31, 2013
February 1, 2014

Spot rate
$0.89
0.88
0.82

Forward
rate for 2/1
delivery
$0.85
0.84
0.82

For the import company, what is the income statement effect of the above information?
a.
b.
c.
d.

No effect in 2013, $4,000 gain in 2014
$1,000 gain in 2013, $6,000 gain in 2014
$1,000 loss in 2013, $6,000 loss in 2014
No effect in 2013, $4,000 loss in 2014

ANS: a
2013:
forward contract: ($.85 - $.84) x A$100,000 =
payable: ($.89 - $.88) x A$100,000 =
2014:
forward contract: ($.84 - $.82) x A$100,000 =
payable: ($.88 - $.82) x A$100,000 =

Test Bank, Chapter 7

$1,000 loss
1,000 gain
-0$2,000 loss
6,000 gain
$4,000 gain

©Cambridge Business Publishers, 2010
9


17.

Topic: Hedge of firm commitment
LO 5
ABC Corporation issues a purchase order for 1,000,000 semiconductors to a foreign
supplier. The agreed upon total price is FC1,200,000, and the current spot rate is $1/FC.
Suppose a forward contract is taken out when the purchase order is issued, at a rate of
$0.95/FC, for delivery when the semiconductors are received. If the spot rate rises to
$1.05 when the semiconductors are received and paid for by ABC, at what value will the
semiconductors be reported on ABC’s books?
a.
b.
c.
d.

$1,020,000
$1,140,000
$1,200,000
$1,260,000

ANS: b
$1.05 x FC1,200,000 =
($1.05 - $.95) x FC1,200,000 =

$1,260,000
(120,000)
$1,140,000

Use the following information to answer questions 18 and 19 below.
A U.S. company purchases a 60-day certificate of deposit from an Italian bank on October 15.
The certificate has a face value of €1,000,000, costs $1,200,000 (the spot rate is $1.20/€), and
pays interest at an annual rate of 6 percent. On December 14, the certificate of deposit matures
and the company receives principal and interest of €1,010,000. The spot rate on December 14 is
$1.18/€. The average spot rate for the period October 15 – December 14 is $1.19/€.
18.

Topic: Foreign currency lending
LO 2
The exchange gain or loss on this investment is:
a.
b.
c.
d.

$20,200 gain
$20,200 loss
$20,000 gain
$20,000 loss

ANS: d
€1,000,000 x ($1.20 - $1.18) = $20,000 loss

©Cambridge Business Publishers, 2010
10
Edition

Advanced Accounting, 1st


19.

Topic: Foreign currency lending
LO 2
Interest income on the investment is reported at:
a.
b.
c.
d.

$0
$11,800
$11,900
$12,000

ANS: b
€10,000

x $1.18 = $11,800

Use the following information to answer questions 20 – 22 below:
A U.S. company anticipates that it will purchase merchandise for €10,000,000 at the end of July,
and pay for it at the end of September. On March 1, it enters a forward contract to buy
€10,000,000 on September 30. The forward contract qualifies as a cash flow hedge. The
company’s accounting year ends December 31. The company actually purchases the merchandise
on July 30 and closes the forward contract and pays for the merchandise on September 30. It still
holds the merchandise at the end of the year. Exchange rates are as follows:
Forward rate
for 9/30 delivery
March 1
July 30
September 30

Test Bank, Chapter 7

Spot rate
$1.40
1.42
1.43

$1.41
1.415
1.43

©Cambridge Business Publishers, 2010
11


20.

Topic: Hedge of forecasted transaction
LO 6
The merchandise is reported on the year-end balance sheet at:
a.
b.
c.
d.

$14,100,000
$14,150,000
$14,200,000
$14,300,000

ANS: c
Changes in the value of the forward contract remain in other comprehensive income
until the merchandise is sold. The merchandise is reported at the spot rate at the date of
purchase, $1.42.
21.

Topic: Hedge of forecasted transaction
LO 6
What is the net effect on income for the year?
a.
b.
c.
d.

No effect
$100 loss
$100 gain
$50 gain

ANS: a
Changes in the value of the forward are reported in other comprehensive income.
The $100 loss on the payable is exactly offset by a reclassification of $100 out of other
comprehensive income, so there is no net effect on income.

©Cambridge Business Publishers, 2010
12
Edition

Advanced Accounting, 1st


22.

Topic: Hedge of forecasted transaction
LO 6
When the merchandise is sold, what amount is reported for cost of goods sold?
a.
b.
c.
d.

$14,100,000
$14,150,000
$14,200,000
$14,300,000

ANS: a
At the end of the year, other comprehensive income has a credit balance of $100. When
the merchandise is sold, it is reclassified as a reduction in cost of goods sold; $14,100,000
= $14,200,000 - $100,000.
Journal entries related to questions 20 – 22 (in thousands):
July 30
Inventory

14,200
Accounts payable

14,200

Investment in forward

50
Other comprehensive income

September 30
Exchange loss

50
100

Accounts payable

100

Investment in forward

150
Other comprehensive income

Other comprehensive income

150
100

Exchange gain

100

Accounts payable

14,300
Cash
Investment in forward

When merchandise is sold:
Cost of goods sold
Other comprehensive income

14,100
100
Inventory

Test Bank, Chapter 7

14,100
200

14,200

©Cambridge Business Publishers, 2010
13


Use the following information on the U.S. dollar value of the euro to answer questions 23 – 25:

November 30, 2011
December 31, 2011
March 20, 2012
23.

Spot rate
$ 1.30
1.33
1.35

Forward rate for
March 20, 2012
delivery
$ 1.29
1.31
1.35

Topic: Speculative forward purchase contract
LO 7
On November 30, 2011, a U.S. company, with a December 31 year-end, enters a forward
purchase contract for €100,000 to be delivered on March 20, 2012. The forward
contract does not qualify as a hedge. The company closes the contract at its expiration
date. Which statement is true?
a.
b.
c.
d.

No gain or loss is reported until the forward is closed on March 20
A gain of $2,000 is reported in 2012
A gain of $4,000 is reported in 2012
A gain of $6,000 is reported in 2012

ANS: c
The change in value of the forward is reported in income as the forward rate changes. For
2012, the gain is ($1.35 - $1.31) x €100,000 = $4,000.
24.

Topic: Speculative forward sale contract
LO 7
On November 30, 2011, a U.S. company, with a December 31 year-end, enters a forward
sale contract for €100,000 to be delivered on March 20, 2012. The forward contract
does not qualify as a hedge. The company closes the forward contract on December 31.
Which statement is true?
a.
b.
c.
d.

No gain or loss is reported
A loss of $1,000 is reported in 2011
A loss of $3,000 is reported in 2011
A loss of $2,000 is reported in 2011

ANS: d
The change in value of the forward is reported in income as the forward rate changes. For
2011, the loss is ($1.31 - $1.29) x €100,000 = $2,000

©Cambridge Business Publishers, 2010
14
Edition

Advanced Accounting, 1st


25.

Topic: IFRS for hedge of a forecasted purchase
LO 8
On November 30, 2011, a U.S. company, with a December 31 year-end, enters a forward
purchase contract for €100,000 to be delivered on March 20, 2012. The contract hedges
a forecasted purchase of equipment. The forward is closed and the equipment purchased
on March 20. If the company follows IFRS and reports gains and losses on hedges of
forecasted transactions as basis adjustments, total depreciation expense over the life of
the equipment is:
a.
b.
c.
d.

$129,000
$130,000
$131,000
$135,000

ANS: a
The equipment is recorded at the spot rate of $1.35 x €100,000 = $135,000, adjusted for
the $6,000 [= $1.35 - $1.29) x €100,000] gain on the forward contract.
26.

Topic: Exchange rates
LO 1
The value of the euro changes from $1.39 to $1.43. Which statement is true concerning
changes in the value of the euro in relation to the U.S. dollar?
a.
b.
c.
d.

Each U.S. dollar can be exchanged for more euros.
Each euro can be exchanged for fewer U.S. dollars.
The U.S. dollar has strengthened with respect to the euro.
A $10 product can be purchased with fewer euros.

ANS: d
27.

Topic: Exchange rates
LO 1
Informal markets contracting for future delivery of foreign currencies are called:
a.
b.
c.
d.

Spot markets
Forward markets
Futures markets
Direct markets

ANS: b

Test Bank, Chapter 7

©Cambridge Business Publishers, 2010
15


28.

Topic: Forward sale hedging foreign currency receivable
LO 4
A U.S. company has euro-denominated receivables that it hedges with a forward sale of
euros. The euro weakens against the U.S. dollar. Which statement is true?
a.
b.
c.
d.

The gain on the receivables and the loss on the forward are reported on the income
statement.
The gain on the receivables and the loss on the forward are reported in other
comprehensive income.
The loss on the receivables and the gain on the forward are reported on the income
statement.
The loss on the receivables and the gain on the forward are reported in other
comprehensive income.

ANS: c
29.

Topic: Forward purchase hedging foreign currency payable
LO 4
A U.S. company has payables to suppliers denominated in euros, and hedges these
payables with foreign currency forward purchase contracts. The euro strengthens against
the U.S. dollar. Which statement is true?
a.
b.
c.
d.

The gain on the payables and the loss on the forward are reported on the income
statement.
The gain on the payables and the loss on the forward are reported in other
comprehensive income.
The loss on the payables and the gain on the forward are reported on the income
statement.
The loss on the payables and the gain on the forward are reported in other
comprehensive income.

ANS: c

©Cambridge Business Publishers, 2010
16
Edition

Advanced Accounting, 1st


30.

Topic: Forward sale hedging forecasted transaction
LO 6
A U.S. company sells its products to customers in Japan, priced in yen. It hedges a
forecasted sale to a Japanese customer with a forward sale of yen. Changes in the value of
the hedge investment are:
a.
b.
c.
d.

Reported in other comprehensive income until the products are produced
Reported as adjustments to selling and administrative expenses when the products
are sold
Reported in income as the changes occur
Reported in other comprehensive income until the products are sold

ANS: d
31.

Topic: Special hedge accounting, cash flow hedges
LO 3, 6
Changes in the market value of forward foreign currency contracts used to hedge
forecasted sales of merchandise to customers are:
a.
b.
c.
d.

Reported on the income statement if the forwards qualify for special hedge
accounting and in other comprehensive income if they don’t qualify.
Reported as a direct adjustment to retained earnings if they qualify for special
hedge accounting and on the income statement if they don’t qualify.
Reported in other comprehensive income if they qualify for special hedge
accounting and on the income statement if they don’t qualify.
Not reported if they qualify for special hedge accounting and reported on the
income statement if they don’t qualify.

ANS: c

Test Bank, Chapter 7

©Cambridge Business Publishers, 2010
17


32.

Topic: Cash flow hedges
LO 3, 6
Which one of the following is a cash flow hedge for a U.S. company?
a.
b.
c.
d.

A hedge of euro-denominated receivables
A hedge of a planned purchase of inventory, denominated in pesos
A hedge of a sales order from a customer in the U.K., denominated in pounds
A hedge of payables denominated in U.S. dollars

ANS: b
33.

Topic: Identification of hedge investments
LO 3
Which of the following is not a hedge investment?
a.
b.
c.
d.

A U.S. company issues a purchase order to a supplier in Mexico who requires
payment in pesos, and invests in a put option in pesos.
A U.S. company has debt denominated in euros, and invests in a forward purchase
of euros.
A U.S. company’s customers owe it several million pesos from credit sales, and the
company invests in a forward sale of pesos.
A U.S. company invests in corporate bonds denominated in euros and enters a put
option in euros.

ANS: a
34.

Topic: Identification of hedge investments
LO 3
You are a U.S. investor and you expect that the value of the euro, in U.S. dollar terms,
will increase. Which of the following investments would you make?
a.
b.
c.
d.

Short position in euro futures.
Put option in euros.
Borrow from a bank in Italy, payment denominated in euros.
Forward purchase of euros.

ANS: d

©Cambridge Business Publishers, 2010
18
Edition

Advanced Accounting, 1st


35.

Topic: Derivatives disclosures
LO 7
SFAS 161, effective at the end of 2008, provides that:
a.
b.
c.
d.

Hedges reported as assets be combined with hedges reported as liabilities.
All hedged items be carried at market value.
Additional footnote disclosures detail hedging gains and losses by hedge type.
Hedging gains and losses be separately displayed on the income statement and not
combined with other accounts.

ANS: c
36.

Topic: Identification of hedge investments
LO 3
Which of the following is the real hedge?
a.
b.
c.
d.

A call option in euros, used to hedge a forecasted sale to a customer, denominated
in euros
A call option in euros, used to hedge an investment in securities, denominated in
euros
A put option in euros, used to hedge a receivable denominated in euros
A forward sale in euros, used to hedge debt denominated in euros

ANS: c
37.

Topic: Hedge accounting
LO 3
On August 1, a U.S. company enters into a forward contract, in which it agrees to buy
1,000,000 euros from a bank at a rate of $1.45 on December 1. Changes in the value of
the forward contract will be reported on the income statement in which one of the
following situations?
a.
b.
c.
d.

The U.S. company uses the forward contract to hedge a loan denominated in
euros.
The U.S. company uses the forward contract to hedge a forecasted purchase of
merchandise from a French supplier.
The U.S. company uses the forward contract to hedge a planned purchase of
commodities from an Italian supplier.
The U.S. company uses the forward contract to hedge an expected acquisition of
commodities from a Belgian company.

ANS: a

Test Bank, Chapter 7

©Cambridge Business Publishers, 2010
19


38.

Topic: Hedging financial risk
LO 1, 3
Which statement below best describes the process of hedging using financial derivatives?
a.
b.
c.
d.

You have inside information that the $/yen rate is going to rise, so you invest in a
financial derivative that allows you to gain if the $/yen rate rises.
You have inside information that the $/euro rate is going to fall, so you invest in a
financial derivative that allows you to gain if the $/euro rate falls.
As part of your normal business transactions, you are exposed to financial risk.
You invest in financial derivatives to increase potential gains from financial risk.
As part of your normal business transactions, you are exposed to financial risk.
You invest in financial derivatives to reduce that risk.

ANS: d
39.

Topic: Hedging financial risk
LO 1, 3
A U.S. manufacturing company imports parts from a supplier in Germany. The company is
required to pay the supplier in euros. Which investment will hedge the manufacturing
company's foreign exchange risk?
a.
b.
c.
d.

Call option in euros
Short position in euros
Forward sale of euros
Borrowing from a German bank

ANS: a
40.

Topic: Valuation of forward contracts
LO 3
How are investments in financial derivatives valued on the balance sheet?
a.
b.
c.
d.

Market value
Cost
Lower of cost or market value
Not reported

ANS: a

©Cambridge Business Publishers, 2010
20
Edition

Advanced Accounting, 1st


41.

Topic: Valuation of forward contracts
LO 3
On December 1, a U.S. company agrees to buy euros on February 1 at a contract price of
$1.40. The company did not pay anything for this contract. The exchange rate for euros
declines to $1.38 (U.S. dollar strengthens) between December 1 and December 31, when
the company’s reporting year ends. How is this contract reported on the company’s yearend balance sheet?
a.
b.
c.
d.

In the asset section
In the liability section
As a contra asset
The contract is not reported on the balance sheet

ANS: b
42.

Topic: Hedges of firm commitments
LO 5
On July 10, 2012, a U.S. company with a December 31 year-end enters a forward contract
that locks in the selling price of won, for delivery on August 15. The forward contract
hedges a firm commitment to sell merchandise to a customer in Korea, with payment
denominated in won. The sale is made on August 1, 2012 and payment is received from
the customer on August 15. Where is the value of the firm commitment to sell reported in
the year-end financial statements for 2012?
a.
b.
c.
d.

Asset or liability on the balance sheet
Increase or decrease in other comprehensive income
Adjustment to sales revenue
Adjustment to cost of goods sold

ANS: c

Test Bank, Chapter 7

©Cambridge Business Publishers, 2010
21


43.

Topic: Foreign currency borrowing
LO 2
The XYZ Company borrows 100,000,000 euros by issuing bonds to German investors
when the spot rate is $1.25/€. The interest rate is 10 percent per annum. When XYZ
accounts for this loan, which of the following will not be true?
a.
b.
c.
d.

A decrease in the exchange rate will generate an exchange gain on the bonds
payable
If the spot rate rises to $1.35/€ one year hence, when the interest payment is
accrued, the interest expense will be recorded at $13,500,000
If XYZ desires to hedge these bonds, it will have to purchase euros forward
The bonds payable will be carried at $125,000,000 until they mature

ANS: d
44.

Topic: Foreign currency borrowing
LO 2
Interest expense on a loan denominated in another currency is translated at:
a.
b.
c.
d.

The average spot rate for the period the interest covers
The spot rate when the loan was made
The spot rate when the interest is recorded
The forward rate for delivery when the interest must be paid

ANS: c
45.

Topic: Hedging strategy
LO 3
U.S. manufacturers that sell to customers in other countries, priced in the currency of the
customer’s country, often adjust their hedging strategy depending on which way they
believe foreign currency rates are headed. Which statement best represents the adjustment
they make, if the U.S. dollar is expected to weaken?
a.
b.
c.
d.

Reduce the percentage of receivables hedged
Reduce the percentage of payables hedged
Increase the percentage of receivables hedged
Increase the percentage of payables hedged

ANS: a

©Cambridge Business Publishers, 2010
22
Edition

Advanced Accounting, 1st


46.

Topic: Hedge accounting
LO 3
Two major goals of SFAS 133 are:
a.
b.
c.
d.

Disclose the fair values of derivatives investments in the footnotes of the financial
statements, and report hedged assets and liabilities at fair value on the balance
sheet.
Report the fair values of derivatives investments on the balance sheet, and report
hedged assets and liabilities at fair value on the balance sheet.
Report the fair values of derivatives investments on the balance sheet, and match
gains and losses on hedge investments and hedged assets and liabilities on the same
income statement.
Report hedged assets and liabilities at fair value on the balance sheet, and match
gains and losses on hedge investments and hedged assets and liabilities on the same
income statement.

ANS: c
47.

Topic: Hedge of forecasted transaction
LO 6
A U.S. company hedges an anticipated sale of merchandise to a foreign customer. When
are gains and losses on the hedge investment reported on the income statement?
a.
b.
c.
d.

When the customer pays for the merchandise
When the anticipated sale becomes a firm commitment
When the hedge investment is determined to be an effective hedge
When the merchandise is sold

ANS: d
48.

Topic: Speculative investments
LO 7
A U.S. company enters a forward purchase contract that does not qualify as a hedge
investment. When are gains and losses on the hedge investment reported on the income
statement?
a.
b.
c.
d.

When the forward contract changes in market value
When the forward contract is closed
When the forward contract is determined to be an effective hedge
When the merchandise is sold

ANS: a

Test Bank, Chapter 7

©Cambridge Business Publishers, 2010
23


49.

Topic: Hedge of foreign-currency-denominated payable
LO 4
A U.S. company has entered into a forward purchase contract to hedge a reported foreign
currency obligation. If the U.S. dollar weakens against the foreign currency:
a.
b.
c.
d.

The forward contract appears as a current asset on the company’s balance sheet.
The forward contract’s reported value exactly offsets the reported foreign currency
obligation, with no net balance sheet disclosure.
The gain on the forward contract adds to other comprehensive income.
The gain on the foreign currency obligation adds to other comprehensive income.

ANS: a
50.

Topic: IFRS for foreign currency hedging
LO 8
IFRS allows which reporting practice, not allowed under U.S. GAAP?
a.
b.
c.
d.

Reporting foreign currency derivative positions at cost rather than at market value
Reporting gains and losses on cash flow hedges as adjustments to the carrying
value of related asset acquisitions
Reporting gains and losses on firm commitment hedges as adjustments to the
carrying value of related asset acquisitions
Reporting foreign currency derivative positions at market rather than at cost

ANS: b

©Cambridge Business Publishers, 2010
24
Edition

Advanced Accounting, 1st


PROBLEMS
1.

Topic: Fair value hedge of receivables and payables, cash flow hedge of
forecasted transaction
LO 4, 6
Use the following exchange rates for the Canadian dollar to answer the three questions
below concerning a U.S. company’s foreign exchange activities. The company’s
accounting year ends December 31.

October 31, 2010
December 31, 2010
March 31, 2011

Spot rate
$ 0.82
0.85
0.83

Forward rate for
March 31, 2011 delivery
$ 0.81
0.86
0.83

Required
Answer the following questions.
a.

The company sells merchandise to a Canadian customer for C$100,000 on October
31, 2010, and receives payment from the customer, in Canadian dollars, on March
31, 2011. What are the following balances?
i.
Sales revenue for 2010
ii.
Accounts receivable, December 31, 2010
iii.
Exchange gain or loss for 2011

b.

The company sells merchandise to a Canadian customer for C$100,000 on October
31, 2010, and receives payment from the customer, in Canadian dollars, on March
31, 2011. On October 31, 2010 it enters a forward contract to lock in the selling
price of Canadian dollars, for March 31, 2011 delivery. On March 31, 2011, it
delivers the Canadian dollars and closes the forward contract. What are the
balances?
i.
Investment in forward , December 31, 2010
ii.
Amount of U.S. dollars received March 31, 2011

c.

The company enters a forward contract on October 31, 2010 to hedge a forecasted
purchase of merchandise for C$100,000 on March 31, 2011. On March 31 it takes
delivery of the merchandise, closes the forward and pays for the merchandise. It
sells the merchandise in May. What are the balances?
i.
Investment in forward, December 31, 2010
ii.
Cost of goods sold on May sale

Test Bank, Chapter 7

©Cambridge Business Publishers, 2010
25


Tài liệu bạn tìm kiếm đã sẵn sàng tải về

Tải bản đầy đủ ngay

×