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AC450 Unit 7 Assignment Problems 2014

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Question;Problem 9-24 [LO2]On December 20, 2013, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to aforeign customer at a price of 115,000 ostras. Payment is received on January 10, 2014. Currency exchange ratesfor 1 ostra are as follows:December 20, 2013December 31, 2013January 10, 2014a.$ 1.211.181.14How does the fluctuation in exchange rates affect Butanta?s 2013 income statement? (Input the amount as apositive value.)The ostra receivable in dollar value, resulting in a foreignexchange of $ in 2013.b. How does the fluctuation in exchange rates affect Butanta?s 2014 income statement? (Input the amount as apositive value.)The ostra receivable in dollar value, resulting in a foreignexchange of $ in 2014.Problem 9-27 [LO2]Acme Corporation (a U.S. company located in Sarasota, Florida) has the following import/export transactions in2013:March 1May 1August 1September 1Bought inventory costing 59,000 pesos on credit.Sold 80 percent of the inventory for 54,000 pesos on credit.Collected 44,500 pesos from customers.Paid 34,500 pesos to creditors.Currency exchange rates for 1 peso for 2013 are as follows:March 1May 1August 1September 1December 31$0.180.190.200.210.22Assume that all receipts were converted into dollars as soon as they were received.For each of the following accounts, how much will Acme report on its 2013 financial statements?a.b.c.d.e.f.InventoryCost of goods soldSalesAccounts receivableAccounts payableCash$$$$$$Problem 9-31 [LO4]Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1,2013, with payment of 15,000 korunas to be received on March 1, 2014. Brandlin enters into aforward contract on December 1, 2013, to sell 15,000 korunas on March 1, 2014. Relevantexchange rates for the koruna on various dates are as follows:DateForwardRate(to March 1,Spot Rate 2014)December 1, 2013$December 31, 2013March 1, 20142.602.702.85$ 2.6752.800N/ABrandlin's incremental borrowing rate is 12 percent. The present value factor for two months atan annual interest rate of 12 percent (1 percent per month) is 0.9803. Brandlin must close itsbooks and prepare financial statements at December 31.a-1. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreigncurrency receivable and recognizes any premium or discount using the straight-linemethod, prepare journal entries for these transactions in U.S. dollars. (Leave no cellsblank. If no entry is required, select "No Journal Entry Required" in the account field and zero(0) in the amount field. Do not round intermediate calculations. Round your answers to thenearest dollar amount.)Date12/1/13General JournalTo record the sales.To record the forward contract.12/31/13To record foreign exchange gain.To record forward contract as a liability.DebitCreditTo record loss on forward contract.To allocate forward contract premium revenue.3/1/14To record foreign exchange gain.To record forward contract as a liability.To record loss on forward contract.To allocate forward contract premium revenue.To record receipt.To record settlement of the forward contract.a-2. What is the impact on 2013 net income? (Do not round intermediate calculations.)Impact on 2013 income$a-3. What is the impact on 2014 net income? (Do not round intermediate calculations.)Impact on 2014 income$a-4. What is the impact on net income over the two accounting periods? (Do not roundintermediate calculations.)Impact on net income$b-1. Assuming that Brandlin designates the forward contract as a fair value hedge of a foreigncurrency receivable, prepare journal entries for these transactions in U.S. dollars. (Leaveno cells blank. If no entry is required, select "No Journal Entry Required" in the accountfield and zero (0) in the amount field. Do not round intermediate calculations. Round youranswers to the nearest dollar amount.)Date12/1/13General JournalTo record the sales.To record the forward contract.12/31/13To record foreign exchange gain.To record loss on forward contract.3/1/14To record foreign exchange gain.To record loss on forward contract.To record receipt.DebitCreditTo record settlement of the forward contract.b-2. What is the impact on 2013 net income? (Do not round intermediate calculations. Roundyour answer to the nearest dollar amount.)Impact on 2013 income$b-3. What is the impact on 2014 net income? (Do not round intermediate calculations. Roundyour answer to the nearest dollar amount.)Impact on 2014 income$b-4. What is the impact on net income over the two accounting periods? (Do not roundintermediate calculations.)Impact on net incomeProblem 9-40 [LO5]$Big Arber Company ordered parts from a foreign supplier on November 20 at a price of 62,000 pijios when the spotrate was $0.21 per pijio. Delivery and payment were scheduled for December 20. On November 20, Big Arberacquired a call option on 62,000 pijios at a strike price of $0.21, paying a premium of $0.004 per pijio. It designatesthe option as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment ismeasured by referring to changes in the spot rate. The parts arrive and Big Arber makes payment according toschedule. Big Arber does not close its books until December 31.a. Assuming a spot rate of $0.22 per pijio on December 20, prepare all journal entries to account for the option andfirm commitment. (Leave no cells blank. If no entry is required, select "No Journal Entry Required" in theaccount field and zero (0) in the amount field.)Date11/20General JournalTo record purchase of foreign currency option.DebitCreditTo record the purchase agreement.12/20To record firm commitment loss.To record gain on foreign currency option.To record exercise the foreign currency option.To record purchase of inventory parts.To close firm commitment.b. Assuming a spot rate of $0.19 per pijio on December 20, prepare all journal entries to account for the option andfirm commitment. (Leave no cells blank. If no entry is required, select "No Journal Entry Required" in theaccount field and zero (0) in the amount field.)Date11/20General JournalTo record foreign currency option.DebitCreditTo record the purchase agreement.12/20To record gain on firm commitment.To record loss on foreign currency option.To record payment.To record purchase of inventory parts.To close firm commitment.Problem 10-25 [LO3]Fenwicke Company began operating a subsidiary in a foreign country on January 1, 2013, by acquiring all of itscommon stock for LCU 66,000, which was equal to fair value. This subsidiary immediately borrowed LCU 165,000on a five-year note with 5 percent interest payable annually beginning on January 1, 2014. The subsidiary thenpurchased for LCU 231,000 a building that had a 10-year anticipated life and no salvage value and is to bedepreciated using the straight-line method. The subsidiary rents the building for three years to a group of localdoctors for LCU 4,000 per month. By year-end, payments totaling LCU 40,000 had been received. On October 1,LCU 3,700 was paid for a repair made on that date. The subsidiary transferred a cash dividend of LCU 5,200 backto Fenwicke on December 31, 2013. The functional currency for the subsidiary is the LCU. Currency exchange ratesfor 1 LCU follow:January 1, 2013October 1, 2013Average for 2013December 31, 2013$ 2.202.052.102.00= 1 LCU= 1= 1= 1Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in LCU and thentranslate these amounts into U.S. dollars. (Be sure to list assets and liabilities in the order of liquidity. Amountsto be deducted and losses should be indicated with minus sign. Leave no cells blank - be certain to enter "0"wherever required. Enter the expense amounts in the order mentioned.)Fenwicke Company's SubsidiaryIncome StatementLCUU.S. DollarsStatement of Retained EarningsLCUU.S. DollarsRetained earnings, 1/1Retained earnings, 12/31Balance SheetLCUTotal assetsTotal liabilities and equitiesU.S. DollarsProblem 10-28 [LO3, LO4]Aerkion Company starts 2013 with two assets: cash of 23,500 LCU (local currency units) and land that originally cost80,000 LCU when acquired on April 4, 2005. On May 1, 2013, Aerkion rendered services to a customer for 24,000LCU, an amount immediately paid in cash. On October 1, 2013, the company incurred an 13,200 LCU operatingexpense that was immediately paid. No other transactions occurred during the year. Currency exchange rates for 1 LCUfollow:April 4, 2005January 1, 2013May 1, 2013October 1, 2013Average for 2013December 31, 2013LCU 111111= $ 0.26=0.27=0.28=0.29=0.30=0.33a. Assume that Aerkion is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as itsreporting currency. Assume also that the LCU is the subsidiary?s functional currency. What is the translationadjustment for this subsidiary for the year 2013? (Input the amount as a positive value.)translation adjustment $b. Assume that Aerkion is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as itsreporting currency. Assume also that the U.S. dollar is the subsidiary?s functional currency. What is theremeasurement gain or loss for 2013? (Input the amount as a positive value.)Remeasurement $c. Assume that Aerkion is a foreign subsidiary of a U.S. multinational company. On the December 31, 2013, balancesheet, what is the translated value of the Land account? On the December 31, 2013, balance sheet, what is theremeasured value of the Land account?Translated value of landRemeasured value of land$$Problem 10-29 [LO3, LO4]Lancer, Inc., starts a subsidiary in a foreign country on January 1, 2012. The following account balances for the yearending December 31, 2013, are stated in kanquo (KQ), the local currency:SalesInventory (bought on 3/1/13)Equipment (bought on 1/1/12)Rent expenseDividends (paid on 10/1/13)Notes receivable (to be collected in 2016)Accumulated depreciation?equipmentSalary payableDepreciation expenseKQ 290,000159,50078,00018,00026,00045,00023,4006,8007,800The following exchange rates for $1 are applicable:January 1, 2012January 1, 2013March 1, 2013October 1, 2013December 31, 2013Average for 2012Average for 201328 KQ333436372935Lancer is preparing account balances to produce consolidated financial statements.a. Assuming that the kanquo is the functional currency, what exchange rate would be used to report each of theseaccounts in U.S. dollar consolidated financial statements?AccountSalesExchange RateInventoryEquipmentRent expenseDividendsNotes receivableAccumulated depreciation?equipmentSalary payableDepreciation expenseb. Assuming that the U.S. dollar is the functional currency, what exchange rate would be used to report each ofthese accounts in U.S. dollar consolidated financial statements?AccountSalesInventoryEquipmentRent expenseDividendsNotes receivableAccumulated depreciation?equipmentSalary payableDepreciation expenseExchange RateProblem 10-30 [LO3, LO5]Board Company has a foreign subsidiary that began operations at the start of 2013 with assets of 142,000 kites (thelocal currency unit) and liabilities of 74,000 kites. During this initial year of operation, the subsidiary reported aprofit of 36,000 kites. It distributed two dividends, each for 6,000 kites with one dividend paid on March 1 and theother on October 1. Applicable exchange rates for 1 kite follow:January 1, 2013 (start of business)March 1, 2013Weighted average rate for 2013October 1, 2013December 31, 2013$ 0.790.770.760.750.74a. Assume that the kite is this subsidiary?s functional currency. What translation adjustment would Board report forthe year 2013? (Input the amount as a positive value.)Translation adjustment$b. Assume that on October 1, 2013, Board entered into a forward exchange contract to hedge the net investment inthis subsidiary. On that date, Board agreed to sell 150,000 kites in three months at a forward exchange rate of$0.75/1 kite. Prepare the journal entries required by this forward contract. (Leave no cells blank. If no entry isrequired, select "No Journal Entry Required" in the account field and zero (0) in the amount field.)Date10/1General JournalBoard entered into a forward exchange contract.12/31DebitCreditTo record the change in the value.To record the purchase.To record delivery.c. Compute the net translation adjustment for Board to report in Accumulated Other Comprehensive Income for theyear 2013 under this second set of circumstances. (Input the amount as a positive value.)Net translation adjustment

 

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