Chapter 09 Foreign Currency Transactions and Hedging ...

Chapter 09 Foreign Currency Transactions and Hedging Foreign Exchange Risk Answer Key

Multiple Choice Questions

1. Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2013. Pigskin received payment of 35,000 British pounds on May 8, 2013. The exchange rate was ?1 = $1.54 on April 8 and ?1 = 1.43 on May 8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar)

A. $10,500 loss B. $10,500 gain C. $1,750 loss D. $3,850 loss E. No gain or loss should be recognized. $1.43 - $1.54 = ($.11) ? ?35,000 = ($3,850) Loss

AACSB: Analytic AACSB: Diversity AICPA BB: Global AICPA FN: Measurement Accessibility: Keyboard Navigation

Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-02 Account for foreign currency transactions using the two-transaction perspective; accrual approach.

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2. Norton Co., a U.S. corporation, sold inventory on December 1, 2013, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows:

For what amount should Sales be credited on December 1?

A. $5,500. B. $16,949. C. $18,182. D. $17,241. E. $16,667. December 1st Spot Rate $1.7241 ? ?10,000 = $17,241 Sales Revenue

AACSB: Analytic AACSB: Diversity AICPA BB: Global AICPA FN: Measurement

Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-02 Account for foreign currency transactions using the two-transaction perspective; accrual approach.

1-563 Copyright ? 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of

McGraw-Hill Education.

3. Norton Co., a U.S. corporation, sold inventory on December 1, 2013, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows:

What amount of foreign exchange gain or loss should be recorded on December 31?

A. $300 gain. B. $300 loss. C. $0. D. $941 loss. E. $941 gain. $1.8182 - $1.7241 = $.0941 ? ?10,000 Gain

AACSB: Analytic AACSB: Diversity AICPA BB: Global AICPA FN: Measurement

Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-02 Account for foreign currency transactions using the two-transaction perspective; accrual approach.

1-564 Copyright ? 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of

McGraw-Hill Education.

4. Norton Co., a U.S. corporation, sold inventory on December 1, 2013, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows:

What amount of foreign exchange gain or loss should be recorded on January 30?

A. $1,516 gain. B. $1,516 loss. C. $575 loss. D. $500 loss. E. $500 gain. $1.6666 - $1.8182 = ($.1516) ? ?10,000 = ($1,516) Loss

AACSB: Analytic AACSB: Diversity AICPA BB: Global AICPA FN: Measurement

Blooms: Apply Difficulty: 2 Medium Learning Objective: 09-02 Account for foreign currency transactions using the two-transaction perspective; accrual approach.

1-565 Copyright ? 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of

McGraw-Hill Education.

5. Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows:

For what amount should Brisco's Accounts Payable be credited on May 8?

A. $2,500,000. B. $2,440,000. C. $1,600,000. D. $1,639,344. E. $1,666,667. $1.25 ? FC 2,000,000 = $2,500,000 A/P

AACSB: Analytic AACSB: Diversity AICPA BB: Global AICPA FN: Measurement

Blooms: Apply Difficulty: 1 Easy Learning Objective: 09-02 Account for foreign currency transactions using the two-transaction perspective; accrual approach.

1-566 Copyright ? 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of

McGraw-Hill Education.

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