Question 1

Suppose the direct foreign exchange rates in U.S. dollars are:
1 Singapore dollar = $.7025
1 Cyprus pound = $2.5132
-Based on the information given above, the indirect exchange rates for the Singapore dollar and the Cyprus Pound are:
A) 1.7655 Singapore dollars and 1.4235 Cyprus pounds respectively.
B) 0.2975 Singapore dollars and 1.5132 Cyprus pounds respectively.
C) 2.1622 Singapore dollars and 0.4625 Cyprus pounds respectively.
D) 1.4235 Singapore dollars and 0.3979 Cyprus pounds respectively.

Accepted Answer

D

Question 2

On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is denominated in Saudi riyals. Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are: 
-Based on the preceding information, what journal entry would Imperial make on December 31, 20X8, to revalue foreign currency payable to equivalent U.S. dollar value? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

A

Question 3

Mint Corporation has several transactions with foreign entities. Each transaction is denominated in the local currency unit of the country in which the foreign entity is located. On November 2, 20X8, Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08. The account has not been settled as of December 31, 20X8, when the exchange rate has increased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:
A) $460 loss
B) $387 loss
C) $387 gain
D) $460 gain

Accepted Answer

The foreign exchange gain is calculated based on the difference in exchange rates from the time of sale to the year-end. Initially, the value of the sale in USD is 23,000 LCU * $1.08 = $24,840. By year-end, the value in USD is 23,000 LCU * $1.10 = $25,300. The difference, $25,300 - $24,840, equals a $460 gain.

Question 4

Suppose the direct foreign exchange rates in U.S. dollars are:
1 Singapore dollar = $.7025
1 Cyprus pound = $2.5132
-Based on the information given above, how many Singapore dollars are required to purchase goods costing 10,000 U.S. dollars?
A) 7,025
B) 14,235
C) 17,655
D) 2,975

Accepted Answer

To purchase goods costing 10,000 US dollars with Singapore dollars, you divide the amount in US dollars by the exchange rate of Singapore dollars to US dollars. So, 10,000 / 0.7025 = 14,235 Singapore dollars.

Question 5

Chicago based Corporation X has a number of exporting transactions with companies based in Sweden. Exporting activities result in receivables. If the settlement currency is the Swedish Krona, which of the following will happen by changes in the direct or indirect exchange rates? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of Chicago based Corporation X has a number...

Question 6

On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is denominated in Saudi riyals. Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are: 
-Based on the preceding information, what journal entry would Imperial make on January 10, 20X9, to revalue foreign currency payable to equivalent U.S. dollar value? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of On December 5, 20X8, Texas based Imperial...

Question 7

Spartan Company purchased interior decoration material from Egypt for 100,000 Egyptian pounds on September 5, 20X8, with payment due on December 2, 20X8. Additionally, on September 5, Spartan acquired a 90-day forward contract to purchase 100,000 Egyptian pounds of E$\leq$ = $.1850. The forward contract was acquired to manage the exposed net liability position in Egyptian pounds, but it was not designated as a hedge. The spot rates were: 
-Based on the preceding information, what is the entry required to settle foreign currency payable on December 2? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of Spartan Company purchased interior decoration material from...

Question 8

On March 1, 20X8, Wilson Corporation sold goods for a U.S. dollar equivalent of $31,000 to a Thai company. The transaction is denominated in Thai bahts. The payment is received on May 10. The exchange rates were:  What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on May 10? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

On May 10, the payable needs to be revalued at the current exchange rate of 1 USD equivalent to 31.20 Thai bahts (derived from the given exchange rate of 0.032 USD to 1 Thai baht). Therefore, the foreign currency payable needs to be adjusted to reflect the updated exchange rate. The entry to be recorded is as follows:
Accounts Payable (Thai bahts) - 968,750
Foreign Currency Exchange Gain - 11,250
To adjust foreign currency payable to current exchange rate - 980,000 (31,000 x 31.20)

Question 9

On September 3, 20X8, Jackson Corporation purchases goods for a U.S. dollar equivalent of $17,000 from a Swiss company. The transaction is denominated in Swiss francs (SFr). The payment is made on October 10. The exchange rates were:  What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on October 10? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of On September 3, 20X8, Jackson Corporation purchases...

Question 10

Company X denominated a December 1, 20X9, purchase of goods in a currency other than its functional currency. The transaction resulted in a payable fixed in terms of the amount of foreign currency, and was paid on the settlement date, January 10, 2010. Exchange rates moved unfavorably at December 31, 20X9, resulting in a loss that should:
A) be included as a separate component of stockholders' equity at Dec. 31, 20X9.
B) be included as a component of income from continuing operations for 20X9.
C) be included as a deferred charge at December 31, 20X9.
D) not be reported until January 10, 2010, the settlement date.

Accepted Answer

According to GAAP, losses or gains resulting from changes in exchange rates on transactions denominated in a foreign currency should be included as a component of income from continuing operations for the period in which the exchange rate changes occurred. Therefore, the loss resulting from the unfavorable exchange rate at December 31, 20X9, should be recognized as a component of income from continuing operations for 20X9. It should not be reported as a separate component of stockholders' equity or as a deferred charge. Additionally, the fact that the payable was paid on January 10, 2010, is not relevant for this question as the focus is on the accounting treatment at December 31, 20X9.

Question 11

Upon arrival in Chile, Karen exchanged $1,000 of U.S. currency into 480,000 Chilean Pesos. While returning after her two month visit, she exchanged her remaining 50,000 Pesos into $100 of U.S. currency. What amount of gain or a loss did Karen experience on the 50,000 pesos she held during her visit and converted to U.S. dollars at the departure date?
A) Loss of $4.
B) Gain of $4.
C) Loss of $6.
D) No gain or loss.

Accepted Answer

Initially, Karen exchanged her money at a rate of 480 Chilean Pesos for 1 U.S. dollar ($1,000 = 480,000 Pesos). When she exchanged 50,000 Pesos back to U.S. dollars, she received $100, indicating a new rate of 500 Pesos for 1 U.S. dollar. Originally, 50,000 Pesos would have been worth $104.17 ($50,000 / 480 = $104.17). Thus, converting them back to $100 means she experienced a loss of $4.17, which is closest to a loss of $4.

Question 12

Spartan Company purchased interior decoration material from Egypt for 100,000 Egyptian pounds on September 5, 20X8, with payment due on December 2, 20X8. Additionally, on September 5, Spartan acquired a 90-day forward contract to purchase 100,000 Egyptian pounds of E$\leq$ = $.1850. The forward contract was acquired to manage the exposed net liability position in Egyptian pounds, but it was not designated as a hedge. The spot rates were: -Based on the preceding information, in the entry made on December 2^nd to revalue foreign currency receivable to current equivalent U.S. dollar value, A) Accounts Payable will be debited for $18,350. B) Foreign Currency Units will be debited for $18,500. C) Foreign Currency Transaction Gain will be credited for $150. D) Other Comprehensive Income will be credited for $300.

Accepted Answer

Since the forward contract was not designated as a hedge, any changes in fair value will be recognized as a gain or loss in the income statement. On December 2, 20X8, the spot rate was EF1F1F1S1F1F1F10 = $.1855, which means that the Egyptian pounds have appreciated in value compared to the forward contract rate of $.1850. To revalue the liability to its current equivalent U.S. dollar value, Foreign Currency Transaction Gain will be credited for the difference, which is $150 (($.1855 - $.1850) x 100,000)). Accounts Payable and Foreign Currency Units will not be affected. Other Comprehensive Income is not relevant in this scenario.

Question 13

Suppose the direct foreign exchange rates in U.S. dollars are:
1 Singapore dollar = $.7025
1 Cyprus pound = $2.5132
-Based on the information given above, how many U.S. dollars must be paid for a purchase of citrus fruits costing 10,000 Cyprus pounds?
A) $25,132
B) $15,132
C) $3,979
D) $35,775

Accepted Answer

We need to convert 10,000 Cyprus pounds to U.S. dollars. 
Using the exchange rate of 1 Cyprus pound = $2.5132: 
10,000 Cyprus pounds x $2.5132 = $25,132 
Therefore, the answer is A.

Question 14

On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is denominated in Saudi riyals. Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are: 
-Based on the preceding information, what was the overall foreign currency gain or loss on the accounts payable transaction?
A) $300 loss
B) $200 loss
C) $100 gain
D) $200 gain

Accepted Answer

The overall foreign currency gain on the accounts payable transaction is $100. This is typically calculated by comparing the currency exchange rate at the time of the transaction with the exchange rate at the time of settlement. A gain occurs if the foreign currency strengthens against the domestic currency between the transaction date and the settlement date, reducing the amount of domestic currency needed to settle the payable.

Question 15

Mint Corporation has several transactions with foreign entities. Each transaction is denominated in the local currency unit of the country in which the foreign entity is located. On October 1, 20X8, Mint purchased confectionary items from a foreign company at a price of LCU 5,000 when the direct exchange rate was 1 LCU = $1.20. The account has not been settled as of December 31, 20X8, when the exchange rate has decreased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:
A) $500 loss
B) $500 gain
C) $378 gain
D) $5,500 loss

Accepted Answer

The foreign exchange gain is calculated based on the difference in the exchange rate from the time of purchase to the year-end. Initially, the cost was 5,000 LCU * $1.20 = $6,000. By year-end, the value of the payable in USD, due to the exchange rate change to 1 LCU = $1.10, is 5,000 LCU * $1.10 = $5,500. The difference of $500 ($6,000 - $5,500) represents a foreign exchange gain, not a loss, because Mint Corporation will pay less in USD than initially expected.

Question 16

Chicago based Corporation X has a number of importing transactions with companies based in UK. Importing activities result in payables. If the settlement currency is the British Pound, which of the following will happen by changes in the direct or indirect exchange rates? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

Option B shows that changes in the indirect exchange rates will result in changes in the payables amount in USD. This is because if the settlement currency is GBP, the payables will be denominated in GBP. Any changes in the indirect exchange rate between USD and GBP will affect the payables amount in USD. Direct exchange rates will not have an impact as they do not involve the settlement currency. Option A is incorrect as changes in direct exchange rates will not affect the payables amount in USD. Option C is incorrect as Chicago based Corporation X is the importer and the payables will be denominated in GBP, not USD. Option D is incorrect as it refers to changes in the direct exchange rates between the importers and other companies, which will not affect the payables amount in USD.

Question 17

Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian reals on December 1, 20X8, with payment due on January 20, 20X9. The exchange rates were: 
-Based on the preceding information, which of the following is true of dollar's movement vis-à-vis Brazilian real during the period? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of Heavy Company sold metal scrap to a...

Question 18

If 1 British pound can be exchanged for 180 cents of U.S. currency, what fraction should be used to compute the indirect quotation of the exchange rate expressed in British pounds?
A) 1/180
B) 1/.56
C) 1.8/1
D) 1/1.8

Accepted Answer

Indirect quotation expresses the value of one unit of foreign currency in domestic currency. In this case, we want to express the value of one unit of U.S. currency in British pounds. To do so, we need to take the reciprocal of the exchange rate expressed in cents, which is (1/180) or 0.00555. Then, we convert this to British pounds by multiplying by the exchange rate of 1 pound for 180 cents, which gives us (1/180) x 1.8 = 0.01 or 1/100. Therefore, the fraction that should be used to compute the indirect quotation of the exchange rate expressed in British pounds is 1/1.8.

Question 19

On November 1, 20X8, Denver Company borrowed 500,000 local currency units (LCU) from a foreign lender evidenced by an interest-bearing note due on November 1, 20X9, which is denominated in the currency of the lender. The U.S. dollar equivalent of the note principal was as follows:  In its income statement for 20X9, what amount should Denver include as a foreign exchange gain or loss on the note principal?
A) 15,000 gain
B) 25,000 gain
C) 15,000 loss
D) 40,000 loss

Accepted Answer

The company borrowed 500,000 local currency units (LCU) on November 1, 20X8, and the note became due on November 1, 20X9. Therefore, the company needed to repay the lender in LCU. As of the date of the note issuance, the U.S. dollar equivalent of the note principal was a known amount. However, the exchange rate between the LCU and the U.S. dollar might fluctuate before the note becomes due, and the company needs to revalue the note principal at each balance sheet date.

Assuming that the foreign currency appreciated against the U.S. dollar during the year, the value of the note principal in U.S. dollars decreased. Therefore, the company would report a foreign exchange loss on the note principal in its income statement for 20X9. Based on the information provided, there is not enough information to determine the precise amount of the foreign exchange loss. However, the only answer choice that suggests a loss is choice C), 15,000 loss.

Question 20

Corporation X has a number of exporting transactions with companies based in Vietnam. Exporting activities result in receivables. If the settlement currency is the US dollar, which of the following will happen by changes in the direct or indirect exchange rates? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of Corporation X has a number of exporting...

Quiz 8: Multinational Accounting: Foreign Currency Transactions and Financial Instruments

Suppose the direct foreign exchange rates in U.S. dollars are: 1 Singapore dollar = $.7025 1 Cyprus pound = $2.5132 -Based on the information given above, the indirect exchange rates for the Singapore dollar and the Cyprus Pound are:

Suppose the direct foreign exchange rates in U.S. dollars are: 1 Singapore dollar = $.7025 1 Cyprus pound = $2.5132 -Based on the information given above, how many Singapore dollars are required to purchase goods costing 10,000 U.S. dollars?

Chicago based Corporation X has a number of exporting transactions with companies based in Sweden. Exporting activities result in receivables. If the settlement currency is the Swedish Krona, which of the following will happen by changes in the direct or indirect exchange rates?

Suppose the direct foreign exchange rates in U.S. dollars are: 1 Singapore dollar = $.7025 1 Cyprus pound = $2.5132 -Based on the information given above, how many U.S. dollars must be paid for a purchase of citrus fruits costing 10,000 Cyprus pounds?

Chicago based Corporation X has a number of importing transactions with companies based in UK. Importing activities result in payables. If the settlement currency is the British Pound, which of the following will happen by changes in the direct or indirect exchange rates?

Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian reals on December 1, 20X8, with payment due on January 20, 20X9. The exchange rates were: -Based on the preceding information, which of the following is true of dollar's movement vis-à-vis Brazilian real during the period?

If 1 British pound can be exchanged for 180 cents of U.S. currency, what fraction should be used to compute the indirect quotation of the exchange rate expressed in British pounds?

Corporation X has a number of exporting transactions with companies based in Vietnam. Exporting activities result in receivables. If the settlement currency is the US dollar, which of the following will happen by changes in the direct or indirect exchange rates?