Question 1

Which of the following approaches is used in the United States in accounting for foreign currency transactions?

Accepted Answer

The United States uses a two-transaction perspective to account for foreign currency transactions, where foreign exchange gains and losses are accrued. This means that gains and losses are recognized in the period in which the related transactions occur, rather than being deferred to future periods.

Question 2

All of the following data may be needed to determine the fair value of a forward contract at any point in time except

Accepted Answer

While the future spot rate may be useful in predicting the fair value of the forward contract at maturity, it is not necessarily needed to determine the fair value of the contract at any point in time prior to maturity. The other options listed (the forward rate at contract initiation, current forward rate, discount rate, and incremental borrowing rate) may all be necessary inputs in determining fair value at any point in time.

Question 3

On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow:  Compute the fair value of the foreign currency option at February 1, 2012.

Accepted Answer

The answer of On December 1, 2011, Keenan Company, a...

Question 4

On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow:  Compute the fair value of the foreign currency option at December 1, 2011.

Accepted Answer

The answer of On December 1, 2011, Keenan Company, a...

Question 5

All of the following hedges are used for future purchase/sale transactions except

Accepted Answer

The answer of All of the following hedges are used...

Question 6

A U.S. company sells merchandise to a foreign company denominated in the foreign currency. Which of the following statements is true?

Accepted Answer

If the foreign currency appreciates, the U.S. company will receive more of the foreign currency when they convert it back into U.S. dollars. This results in a foreign exchange gain.

Question 7

On April 1, 2010, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2011. The dollar value of the loan was as follows:  How much foreign exchange gain or loss should be included in Shannon's 2010 income statement?

Accepted Answer

The answer of On April 1, 2010, Shannon Company, a...

Question 8

U.S. GAAP provides guidance for hedges of all the following sources of foreign exchange risk except

Accepted Answer

The answer of U.S. GAAP provides guidance for hedges of...

Question 9

A company has a discount on a forward contract for a foreign currency denominated asset. How is the discount recognized over the life of the contract under fair value hedge accounting?

Accepted Answer

The answer of A company has a discount on a...

Question 10

On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow:  Compute the fair value of the foreign currency option at December 31, 2011.

Accepted Answer

The answer of On December 1, 2011, Keenan Company, a...

Question 11

When a U.S. company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss?

Accepted Answer

If the transaction is denominated in U.S. dollars, there is no need for foreign exchange conversion, therefore no gain or loss will occur.

Question 12

Alpha, Inc., a U.S. company, had a receivable from a customer that was denominated in Mexican pesos. On December 31, 2010, this receivable for 75,000 pesos was correctly included in Alpha's balance sheet at $8,000. The receivable was collected on March 2, 2011, when the U.S. equivalent was $6,900. How much foreign exchange gain or loss will Alpha record on the income statement for the year ended December 31, 2011?

Accepted Answer

The answer of Alpha, Inc., a U.S. company, had a...

Question 13

On April 1, 2010, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2011. The dollar value of the loan was as follows:  Angela, Inc., a U.S. company, had a euro receivable from exports to Spain and a British pound payable resulting from imports from England. Angela recorded foreign exchange gain related to both its euro receivable and pound payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?

Accepted Answer

The answer of On April 1, 2010, Shannon Company, a...

Question 14

A U.S. company buys merchandise from a foreign company denominated in U.S. dollars. Which of the following statements is true?

Accepted Answer

Since the transaction is denominated in U.S. dollars, there will be no foreign exchange gain or loss regardless of whether the foreign currency appreciates or depreciates.

Question 15

On April 1, 2010, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2011. The dollar value of the loan was as follows:  How much foreign exchange gain or loss should be included in Shannon's 2011 income statement?

Accepted Answer

The answer of On April 1, 2010, Shannon Company, a...

Question 16

A forward contract may be used for which of the following? 1) A fair value hedge of an asset.
2) A cash flow hedge of an asset.
3) A fair value hedge of a liability.
4) A cash flow hedge of a liability.

Accepted Answer

The answer of A forward contract may be used for...

Question 17

On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD). Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow:  Compute the U.S. dollars received on February 1, 2012.

Accepted Answer

The answer of On December 1, 2011, Keenan Company, a...

Question 18

A U.S. company sells merchandise to a foreign company denominated in U.S. dollars. Which of the following statements is true?

Accepted Answer

Since the merchandise is being denominated in U.S. dollars, the transaction is not subject to foreign exchange gain or loss as the exchange rate remains constant.

Question 19

A U.S. company buys merchandise from a foreign company denominated in the foreign currency. Which of the following statements is true?

Accepted Answer

The answer of A U.S. company buys merchandise from a...

Question 20

Which of the following statements is true concerning hedge accounting?

Accepted Answer

Hedges of foreign currency firm commitments are used for future sales or purchases. Hedge accounting is used to reduce the impact of changes in foreign currency exchange rates on the financial statements. It allows companies to recognize the gains or losses on the underlying hedged item and the corresponding gains or losses on the hedging instrument in the same reporting period. Hedges of firm commitments are used to hedge the risk of future cash flows arising from either sales or purchases in a foreign currency.

Quiz 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk

Which of the following approaches is used in the United States in accounting for foreign currency transactions?

All of the following data may be needed to determine the fair value of a forward contract at any point in time except

All of the following hedges are used for future purchase/sale transactions except

A U.S. company sells merchandise to a foreign company denominated in the foreign currency. Which of the following statements is true?

On April 1, 2010, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2011. The dollar value of the loan was as follows: How much foreign exchange gain or loss should be included in Shannon's 2010 income statement?

U.S. GAAP provides guidance for hedges of all the following sources of foreign exchange risk except

A company has a discount on a forward contract for a foreign currency denominated asset. How is the discount recognized over the life of the contract under fair value hedge accounting?

When a U.S. company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss?

A U.S. company buys merchandise from a foreign company denominated in U.S. dollars. Which of the following statements is true?

On April 1, 2010, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2011. The dollar value of the loan was as follows: How much foreign exchange gain or loss should be included in Shannon's 2011 income statement?

A forward contract may be used for which of the following? 1) A fair value hedge of an asset. 2) A cash flow hedge of an asset. 3) A fair value hedge of a liability. 4) A cash flow hedge of a liability.

A U.S. company sells merchandise to a foreign company denominated in U.S. dollars. Which of the following statements is true?

A U.S. company buys merchandise from a foreign company denominated in the foreign currency. Which of the following statements is true?

Which of the following statements is true concerning hedge accounting?