Accounting for Foreign Currency Transaction

Accounting for Foreign Currency Transaction 1.

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On Dece Decemb mber er 1, 200 2006, 6, Impo Import rt Comp Comput uter ers, s, Inc Inc.. purch purchas ase e 10 per perso sona na!! compu compute ters rs fro from m a "apan "apanes esee firm firm for  200,000 "apanese yen. The e#change rate for the "apanese yen is $ 1 % 2.22 yen on December 1 an $ 1 % 2.&0 yen on December '1. On its December income statement Import Computers shou! report a foreign e#change gain (!oss) of* A. $ (+6,000) C. $ (16,000) . $ +6,000 D. $ 16,000 On Dece Decembe mberr 1, 2006 2006,, the $ino $inoy y Compa Company ny se!! se!!ss const constru ruct ction ion mat mater eria ia!s !s to a "apa "apane nese se impo import rter er for for 1,-00 1,-00,0 ,000 00 en, en, terms n/60. The re!eant e#change rates are* December 1, 2006 1 en % $ 0.December '1, 2006 1 en % $ 0.& "anuary '0, 200& 1 en % $ 0.0 On its income statement for the year ene December '1, 2006, $inoy Company shou! report a foreign e#change gain (!oss) of* A. $ 0 C. $ '0,000 . $ ('0,000) D. $ ',000 On 3ept 3eptem embe berr 1, 2006, 2006, At! At!an anti tica ca Inc. Inc.,, a ca!e ca!en nar ar year year corpo corpora rati tion on,, purc purcha hase se  car car tire tiress from from a fact factor ory y in 4ong5ong for 200,000 4ong5ong o!!ars. The amount is payab!e in 60 ays. The e#change rate for the 4ong5ong o!!ar has aries as fo!!os* 3eptember 1, 2006 1 h5g7 % $ -.61 3eptember '0, 2006 1 h5g7 % $ -.-+ December '1, 2006 1 h5g7 % $ -.62 If At!antica Inc. prepares 8uarter!y income statements, the fore# gain or !oss for the 8uarters ene 3eptember '0 an December '1, respectie!y, amounts to* A. $ 0 an $ 2,000 !oss C. $ ,000 !oss an $ 6,000 gain . $ 0 an $ 2,000 gain D. $ ,000 gain an $ 6,000 !oss $DA $DA Cor Corpo pora ratio tion, n, ha ha the the fo! fo!!o !oin ing g for forei eign gn cur curre renc ncy y tran transa sact ctio ions ns ur urin ing g 2006 2006** 9ercha 9erchani nise se as purchase purchase  from from a foreig foreign n sup supp!i p!ier er on "anuar "anuary y 10, 200 2006 6 for the $hi!ipp $hi!ippine ine peso peso e8uia!ent of $ 600,000. The inoice as pai on Apri! '0, 2006, at the $hi!ippine peso e8uia!ent of  $60:,000. On 3eptem 3eptember ber 1, 200 2006, 6, $DA Corpora Corporation tion borro borroe e the $hi!ipp $hi!ippine ine peso peso e8uia e8uia!en !entt of $ ',000, ',000,000 000 eience by a note that as payab!e in the !ener;s !oca! currency on 3eptember 1, 200&. On December  '1, 2006, the $hi!ippine peso e8uia!ent of the principa! amount an accrue interest ere $ ',200,000 an $ 120,000, respectie!y. Interest Interest on the note is 10 percent per annum. In $DA;s $DA;s 2006 income statement, hat amount shou! be inc!ue as a fore# !oss< ! oss< A. $ 0,000 C. $ 22:,000 . $ 200,000 D. $ '00,000 On Octo October ber 1, 200 2006, 6, 9a=i5 9a=i5aa Comp Company any ac8uir ac8uire e goo goos s from from >3A >3A Compan Company y for for 7 10,00 10,000, 0, pay payab!e ab!e in >3 >3 o!!a o!!ars rs on Apri! 1, 200&. 3pot rates on arious ates fo!!o* Transaction ate 7 0.01: % $ 1 a!a a!anc ncee she sheet et at atee ? Dec Decem embe berr '1, '1, 200 2006 6 7 0.0 0.01& 1& % $ 1 3ett!ement ate 7 0.020 % $ 1 As a resu!t of this transaction, 9a=i5a Company has a fore# gain (!oss) in 2006 an 200& of (roune)* A. $ ('2,6:0) an $ ::,2'-, respectie!y C. $ (100) an $ '00, respectie!y . $ '2,6:0 an $ (::,2'-), respectie!y D. $ ( 10 10) an $ '0, respectie!y eba ebang ng Comp Compan any y ha a tra traee accou account nt rece recei iab ab!e !e from from a fore foreig ign n custo custome merr state state  in the !oca !oca!! curre currenc ncy y of the foreign customer. The trae account receiab!e for +00,000 !oca! currency units (@C>) ha been restate to $ '1-,000 in ebang;s "une '0, 2006 ba!ance sheet. On "u!y 2&, 2006, the account receiab!e as co!!ecte in fu!! hen the e#change rate as 1 @C> % $ 0.'''''''. The =ourna! entry that ebang prepares to recor the co!!ection of this trae account receiab!e is* A. Cash $ '00,000 Accounts receiab!e $ '00,000 . Cash $ '00,000 Fore# !oss 1-,000 Accounts receiab!e $ '1-,000 C. Cash $ '00,000 •

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Trans!ation a=ustment 1-,000 Accounts receiab!e $ '1-,000 D. Cash $ '1-,000 Accounts receiab!e $ '1-,000 &. @I Company, a $hi!ippine company, purchase merchanise from a foreign supp!ier on Boember -, 2006, for -0,000 foreign currency, hen the se!!ing spot rate as 1 foreign currency % $ 0.2+-. On @I;s December '1, 2006 yearen, the se!!ing spot rate as $ 0.2-. On "anuary 1-, 200&, @I ac8uire -0,000 foreign currency at the se!!ing spot rate of $ 0.'- an pai the inoice. hat amount oes @I report in its income statement for the years 2006 an 200& as foreign e#change gains or (!osses)< A. $ 2-0 an $ (-00), respectie!y C. $ 0 an $ (2-0), respectie!y . $ (2-0) an $ 0, respectie!y D. $ 0 an $ 0, respectie!y :. On 9ay 1, 2006, C #port Corporation so! a 8uantity of urian fruit to a foreign customer for 100,000 foreign currency, payab!e in '0 ays. On 9ay 1, the spot rate is 1 FC % $ 0.:- an the '0 ay forar rate is 1 FC % $0.:1-. On 9ay '0, hen the bi!! is pai, the spot rate is 1 FC % $ 0.:-6. The sa!e of urian fruits shou! be recore at* A. $ :-,000 C. $ :-,600 . $ :,1-0 D. $ 11&,6& +. On "une '0, 2006, 3eet Tooth Company purchases choco!ate canies from a foreign supp!ier for -0,000 foreign currency, payab!e in 60 ays. On "une '0, 1 FC is orth $ 0.6+: by August '0, the ay of sett!ement, 1 FC is orth $ 0.62-6. The 60ay forar rate on "une '0 is 1 FC % $ 0.6612. 3eet Tooth shou! recor the cost of the choco!ate canies at* A. $ '1,2:0 C. $ '2,+0 . $ '1,::D. $ '',060 10. On 9arch '1, 2006, 4IA3 Company ac8uire a '0ay forar contract for 100,000 !oca! currency units (@C>) of a foreign country. The contract as not esignate to hege. On Apri! '0, 2006, 4IA3 prepares a=usting entries an financia! statements on!y at the en of its fisca! year, Apri! '0. Ee!eant e#change rates for one unit of the !oca! currency ere as fo!!os* 9arch '1, 2006 Apri! '0, 2006 3pot rates*   uying $ 0.1: $ 0.1+   3e!!ing   0.20   0.22 Forar rates* Contract maturing Apri! '0, 2006 $ 0.2$ 0.22 On Apri! '0, 2006, fore# gain (!oss) to be recognie is* A. $ ',000 C. $ 2,000 . $ (',000) D. $ 1,000 11. On Boember 2, 2006, $ero Company, $hi!ippine ho!esa!er, orere merchanise from Ino Corporation of  Inonesia. The merchanise is to be e!iere to $ero Company on "anuary '0, 200& at a price of 1,000,000 Eupiah. A!so on Boember 2, $ero hege the foreign currency commitment ith Ino Corporation by contracting ith its ban5 to buy 1,000,000 Eupiah for e!iery on "anuary '0, 200-. #change rates for 1 Eupiah are*  Boember 2, 2006 December '1, 2006 "anuary '0, 200& 3pot rate $ 0.00-2 $ 0.00-' $ 0.00-'0ay forar rate 0.00-' 0.00-0.00-6 +0ay forar rate 0.00-0.00-6 0.00-& On December '1, 2006, fore# gain (!oss) to be recore for the import transactions an the forar contract are* A. $ (-,000) an $ -,000 C. $ (-,000) an $ 10,000 . $ -,000 an $ (-,000) D. $ 0 an $ 0 12. DAEBA Corporation, a $hi!ippine importer, purchase merchanise from 3tar Company of Thai!an for  100,000 aht on 9arch 1, 2006, hen the spot rate for a aht as $ 1.6'0. The account payab!e enominate in aht as not ue unti! 9ay '0, 2006, so DAEBA immeiate!y entere into a +0ay forar contract to hege the transaction against e#change rates. The contract as mae at a forar e#change rate of $ 1.6-0. DAEBA sett!e the forar contract an the account payab!e on 9ay '0, hen the spot rate for aht as $ 1.600. On the sett!ement of the forar contract on 9ay '0, 2006, DAEBA shou! recor a fore# gain (!oss) of* A. $ -,000 C. $ 2,000 . $ (-,000) D. $ (2,000)

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39 Corporation purchase merchanise from @acoste Company of France for 1,000,000 Franc. The merchanise is receie on December 1, 2006, ith payment ue in 60 ays on "anuary '0, 200&. A!so on December 1, 2006, 39 enters into a 60ay forar contract ith anco De Oro to purchase the necessary 1,000,000 Franc for e!iery on "anuary '0, 200& to hege the @acoste transaction. #change rates for Franc on se!ecte ates are as fo!!os* December 1, 2006 December '1, 2006 "anuary '0, 200& 3pot rate $ 6.01 $ 6.16 $ 6.01 '0ay forar rate 6.06.0& 6.0& 60ay forar rate 6.06 6.0: 6.0: hat is the net fore# gain (!oss) from this transaction an hege that i!! be reporte on 39;s 2006 income statement< A. $ (1'0,000) C. $ 20,000 . $ 1'0,000 D. $ (10,000) 1. @ucio Tan, a money changer specu!ate in foreign currency as his business. On October 1, 2006, @ucio bought a 1:0ay forar contract to purchase -,000 >3 o!!ars at a forar rate of 71 % $ -6.-0 hen the spot rate as $-6.00. Other e#change rates ere as fo!!os* 3pot rate Forar rate for 9arch '1, 200& December '1, 2006 $ -6.'0 $ -6.60 9arch '1, 200& -6.'2 The fore# gain (!oss) recognie by @ucio from t his forar contract is* A. $ 1,-00 C. $ -00 . $ ( +00) D. $ (10,000) 1-. The fo!!oing information app!ies to DAGI Corporation;s sa!es of 10,000 foreign currency units uner a forar contract ate Boember 1, 2006, for e!i ery on "anuary '1, 200&*  Boember 1, 2006 December '1, 2006 3pot rate $ 0.:0 $ 0.:' '0ay futures 0.&+ 0.:2 +0ay futures 0.&: 0.:1 DAGI entere into the forar contract to specu!ate in the foreign currency. In DAGI;s income statement for the year ene December '1, 2006, hat amount of fore# !oss shou! be reporte from thi s forar contract< A. $ 100 C. $ 200 . $ '00 D. $ 0 16. On December 12, 2006, >A Company entere into a forar contract to purchase 100,000 foreign currency in +0 ays. The re!eant e#change rates are as fo!!os* 3pot rate Forar rate for 9arch 12, 200& December 12, 2006 $ 0.:: $ 0.+0 December '1, 2006 0.+: 0.+' Assuming that the forar contract is to hege a commitment to purchase machinery being manufacture to >A;s specifications. At December '1, 2006, hat amount of foreign currency transaction gain (!oss) shou! >A inc!ue from this forar contract< A. $ 0 C. $ -,000 . $ ',000 D. $ 10,000