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Question;15.;On November 1, 20X1, a U.S. company purchased;inventory from a foreign supplier for 100,000 FCs, with payment to be made on;January 31, 20X2, in FCs. To hedge against fluctuations in exchange rates, the;firm entered into a forward exchange contract on November 1 to purchase 100,000;FCs on January 31, 20X2. The U.S. firm has a December 31 year end for;accounting purposes. The following exchange rates may apply;Date;Spot Rate;Fwd;Rate;11/1/X1.................................;$0.15;$0.13;12/31/X1................................;$0.16;$0.14;1/31/X2.................................;$0.165;$0.165;Discount rate = 12%;Required;10-22;Chapter 10;Make all the;necessary journal entries for the U.S. firm relative to these events occurring;between November 1, 20X1, and January 31, 20X2.;16.;On November 1, 20X1, a U.S. company sold merchandise;to a foreign firm for 100,000 FCs with payment to be made on January 31, 20X2;in FCs. To hedge against fluctuations in exchange rates, the firm entered into;a forward exchange contract on December 1, 20X1 to sell 100,000 FCs on January;31, 20X2. The U.S. firm has a December 31 year end for accounting purposes. The;following exchange rates may apply;Date;Spot Rate;Fwd;Rate;11/1/X1................................;$0.15;$0.17;12/1/X1................................;$0.155;12/31/X1...............................;$0.16;$0.175;1/31/X2................................;$0.165;$0.165;Discount rate = 10%;Required;Make all the;necessary journal entries for the U.S. firm relative to these events occurring;between November 1, 20X1, and January 31, 20X2.;17.;Zerlie?s Imports purchased automotive parts from a;German firm on July 1, 20X1. The parts cost 150,000 Euros to be paid for on;August 15. To pay for the parts, Zerlie?s Imports borrowed 150,000 euros from a;German bank on July 16. The loan bears an 11% interest rate to be repaid on;August 15 in euros.;Another;option would have been for Zerlie?s to have hedged the purchase with a forward;exchange contract on July 1 to buy 150,000 euros at a forward rate of $0.67.;Exchange rates were as follows;Date;Spot Rate;July 1;20X1....................................;1;M = $0.65;July 16;20X1...................................;1;M = $0.60;August;15, 20X1.................................;1;M = $0.62;Required;a. Compute the effect on net income;assuming the following;(1) Zerlie did;not borrow to pay for the transaction or hedge the transaction on July 1.;(2);Zerlie borrowed from the German bank on July 16.;(3);Zerlie hedged the full purchase on July 1.;**ignore present values and discount rates;b. Determine;which of these three alternatives would have been the best for Zerlie under the;situation described.;10-25;Chapter 10;18.;Bulldog Enterprise, a U.S. firm, agreed on February;1, 20X1, to buy gears from a Mexican firm for 75,000 pesos. Delivery is;scheduled for April 1, 20X1, with payment due on May 1, 20X1. On February 1;20X1, Bulldog also acquired a forward contract to buy 75,000 pesos on May 1;20X1. (The gears represent inventory to the U.S. firm.) There are no fiscal;period ends.;Required;Prepare the;journal entries necessary for Bulldog Enterprise to record this activity.;Assume that the following exchange rates existed;Date;Spot Rate;Forward Rate;February 1, 20X1........;1;peso = $0.223;1;peso = $0.227;April 1, 20X1...........;1;peso =;$0.228;1;peso =;$0.230;May 1, 20X1.............;1;peso = $0.226;1;peso = $0.226;Discount rate = 15%;10-26;Chapter;10;10-27;Chapter 10;19.;On November 1, 20X8 Desket, Inc. a U.S. company;agreed to sell goods to a foreign buyer for 200,000 FC. The goods were to be;shipped on December 1 with payment to be received January 31, 20X9.;The hedging;contract, signed on November 1, 20X8, called for the sale of 200,000 FC on January;31, 20X9. Assume the December 31 is fiscal year end. Exchange rates are as;follows:.......................;11/1/X8;Spot Rate;Fwd;Rate;$0.66;$0.69;12/1/X8.......................;$0.67;$0.68;12/31/X8......................;$0.65;$0.66;Discount rate = 12%;Required;Prepare all;necessary entries through December 31, 20X8 for the commitment hedge and sale.;20.;Red & Blue Company, a U.S. corporation, agreed;to purchase merchandise from a British vendor on January 1, 20X4. The goods;will be shipped on January 31, 20X4 and payment of 200,000 British pounds is;due February 28, 20X4. On January 1, USA signed an agreement with a foreign;exchange broker to buy 200,000 British pounds on February 28, 20X4. Exchange;rates to purchase 1 British pound are as follows:..................;1/1/X4;Spot Rate;Fwd Rate;$1.65;$1.63;1/31/X4.................;$1.62;$1.605;2/28/X4.................;$1.59;$1.59;Discount Rate = 15%;Required;Journalize these transactions.;10-29;Chapter;10;10-30;Chapter 10;21.;On January 1, 20X4, Branson Company, a U.S. corporation;purchased lab equipment from a Japanese vendor for 1,000,000 FC. The 1,000,000;FC is to be paid on March 31, 20X4. On February 1 the company purchased a;forward contract to buy foreign currency which would expire on March 31, 20X4.;The contract was to purchase 1,000,000 FC.;Exchange;Rates are as follows;Date;Spot Rate;Fwd Rate;1/1/X4...............;$0.018;$0.011;2/1/X4...............;$0.014;$0.011;3/31X4...............;$0.013;$0.013;Discount rate = 15%;Required;Prepare the entries to record the;transactions.;22.;Blue & Green, Inc. purchased merchandise for;100,000 FC from a foreign vendor on December 1, 20X5. Payment in FC is due;January 31, 20X6. On December 1, 20X5, Blue & Green signed an agreement;with a foreign exchange broker to buy 100,000 FC on January 30, 20X6. Exchange;rates to purchase 1 FC are as follows:...................................;12/1/X5;Spot Rate;Fwd;Rate;$1.45;$1.40;12/31/X5.................................;$1.43;$1.35;1/31/X6.................................;$1.41;$1.41;Fiscal Year End is 12/31, Discount rate = 12%;Required;Prepare the;journal entries for December 1 through January 31 related to the events;described above.;10-32;Chapter;10;10-33;Chapter 10;23.;On 7/1, a company forecasts the purchase of 10,000;units of inventory from a foreign vendor. The forecasted cost is estimated to;be 150,000FC. It is estimated inventory will be delivered 11/1. Also, on 7/1;the company purchased a call option to buy 150,000 FC at a strike price of;$0.60 anytime during October. An option premium of $1,000..................;Spot;7/1;7/31;8/31;10/1;$0.58;$0.61;$0.63;$0.635;FV of Option.........;$1,000;$1,400;$2,400;$2,600;Required;Prepare the journal entries required through;10/1;24.;On November 1, 20X2, a calendar-year investor;purchased a 90-day forward contract to buy 1,000 FCs at a forward rate of 1 FC;= $1.01, when the spot rate was 1 FC = $1.00. On December 31, 20X2, the forward;rate for a 30-day forward contract was 1 FC = $1.02. On February 1, 20X3, when;the spot rate was 1 FC = $1.03, the investor paid the broker and received the;foreign currency.;Required;Prepare the entries necessary to record this information. Ignore;the present value calculations.;10-34;Chapter 10

 

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