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Question;17.;On August 1, 20X1, an American firm purchased a;machine costing 200,000,000 yen from a Japanese firm to be paid for on October;1, 20X1. Also on August 1, 20X1, the American firm entered into a contract to;purchase 200,000,000 yen to be delivered on October 1, 20X1, at a forward rate;of 1 Yen = $0.00783. The exchange rates were as follows:........................;August 1, 20X1;Spot;1;Yen = $0.00781;August;31;20X1........................;1;Yen = $0.00777;October 1;20X1........................;1;Yen = $0.00779;Which of;the following statements is incorrect concerning the accounting treatment of;these transactions?;a.;The machine's final recorded value was $1,558,000.;b.;The beginning balance in the accounts payable was;$1,562,000.;c. An exchange;gain on the accounts payable of $4,000 was recognized on October 1, 20X1.;d. The value;of the accounts payable just before payment, on October 1, 20X1, was;$1,558,000.;18. Questions 18 and 19 utilize;the following information.;On 6/1/X2;an American firm purchased a inventory costing 100,000 Canadian Dollars from a;Canadian firm to be paid for on 8/1/X2. Also on 6/1/X2, the American firm;entered into a forward contract to purchase 100,000 Canadian dollars for;delivery on 8/1/X2. The exchange rates were as follows;6/1/X2;Spot;Forward............................;1;CD = $0.73;1;CD = $0.74;6/30/X2............................;1;CD =;$0.70;1;CD =;$0.75;8/1/X2............................;1;CD = $0.68;1;CD = $0.68;The;American firms fiscal year end is 6/30/X2. The changes in the value of the;forward contract should be discounted at 8%.;What is the value of the Forward Contract;Receivable-FC on 6/1/X2?;a. $73,000;b.;$74,000;c.;$68,000;d. $70,000;10-5;Chapter 10;19. What is the value of the;Forward Contract Receivable-FC on 6/30/X2?;a.;$75,000;b.;$75,693;c.;$74,693;d. $74,993;20. The purpose;of a hedge on an identifiable commitment where the US company is selling goods;is to;a.;fix the basis of sales revenue to the date of the;commitment;b.;eliminate all exchange gains/losses from the date of;commitment to the date of settlement;c.;fix the basis of cost of goods sold to the date of;commitment;d. eliminate;any exchange gains/losses from the transaction date to the settlement date;21. Which of the following;statements is not true regarding forward contracts that cover periods of time;different from the settlement period (transaction date to the settlement date)?;a.;If the forward contract expires before the;settlement date, the gain or loss will partially offset the gain or loss on the;foreign currency transaction.;b.;If the forward contract expires after the settlement;date, post-settlement date gains and losses are not recognized as components of;current operating income.;c.;Premium and discount are amortized over the life of;the contract.;d. All of these statements are;true.;10-6;Chapter 10;22. Questions 22 & 23 use;the following information;On 4/1/X3;a US Company commits to sell a piece of equipment to a French customer. At that;time, the US company enters into a forward contract to sell foreign currency on;8/1/X3(120 days). Delivery will take place 7/1/X3 with payment due on 8/1/X3.;The fiscal year end for the company is 6/30/X3. The sales price of the;equipment is 200,000 Euros. Various exchange rates are as follows;4/1/X3;Spot;Forward;1FC;= $0.60;1FC = $0.58;6/30/X3;1FC =;$0.58;1FC = $0.56;(also;7/1/X3);1FC = $0.55;1FC = $0.55;8/1/X3;Discount rate is 12%.;What is the amount in the Firm Commitment;account on 6/30/X3?;a. 4,000 debit;b.;8,000 debit;c.;4,000 credit;d. 10,000 credit;23. What is the value of Forward;Contract Payable-FC on 6/30?;a.;112,000;b.;112,040;c.;116,000;d. none of the above;10-7;Chapter 10;24.;Which of the following statements is true concerning;forward contracts classified as hedges of an identifiable foreign currency;commitment?;a. Forward;contracts used as hedges cannot exceed the foreign currency commitment.;b.;Forward contracts cannot extend for a time period;after the transaction date of the commitment.;c.;The gain or loss traceable to the time period after;the transaction date of the commitment should not be deferred.;d. None of these statements is;true.;25.;Which of the following is not true concerning the;accounting for hedges of forecasted transactions using an option?;a.;An intrinsic value must be calculate throughout the;hedge period;b.;The accounting requires revaluing the market value;of the option;c. The option fixes;the value of the transaction to the date of the commitment.;d. All of these statements are;true.;26. The;accounting treatment given a cash flow hedge of a forecasted transaction;continues unless;a. The hedging;relationship is no longer highly effective based on management policies.;b.;The derivative instrument is sold, terminated, or;exercised.;c.;The derivative instrument is no longer designated as;a hedge on a forecasted transaction.;d. all of these statements are;true.;27. A United;States based company that has not hedged an exposed asset position would;experience an exchange gain if;a.;forward rates increased.;b.;forward rates decreased.;c.;spot rates increased.;d. spot rates decreased.;28.;In the accounting for forward exchange contracts;gains and losses are measured using either spot or forward rates. Which of the;following statements concerning measurement of gains and losses is true?;a.;The gains or losses in a hedge on an exposed asset;will use the spot rate for the asset and the forward rate for the forward;contract.;b. The gains or;losses in a speculative hedge will use the forward rate throughout the;contract.;c.;The gains or losses in a hedge on an identifiable;commitment will use the spot rate for the commitment and the forward rate for;the forward contract.;d. All of these statements are;true.

 

Paper#44392 | Written in 18-Jul-2015

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