Connect W6
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ConnectW6.docxTorres Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 107,000 pounds, with delivery and payment to be made on September 20. On July 20, Torres purchased a two-month call option on 107,000 pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction. The option has a strike price of $1.27 per pound and costs $1,070. The spot rate for pounds is $1.27 on June 20 and $1.32 on September 20. What amount will Torres Corporation report as an option expense in net income for the quarter ended September 30?
Multiple Choice
Top of Form
·
$2,350.
·
$535.
·
$1,070.
·
$5,350
Required information
SB On April 1, 2017, Shannon Company, a U.S. company, borrowed 100,000 euros...
On April 1, 2017, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2018. The dollar value of the loan was as follows:
|
Date |
Amount |
||
|
April 1, 2017 |
$ |
97,000 |
|
|
December 31, 2017 |
|
103,000 |
|
|
April 1, 2018 |
|
105,000 |
|
|
|
MC Qu. 38 How much foreign exchange gain or loss should be...
How much foreign exchange gain or loss should be included in Shannon’s 2017 income statement?
Multiple Choice
Top of Form
·
$6,000 gain.
·
$3,000 gain.
·
$3,000 loss.
·
$7,000 gain.
·
$6,000 loss.
Bottom of Form
Required information
SB On April 1, 2017, Shannon Company, a U.S. company, borrowed 100,000 euros...
On April 1, 2017, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2018. The dollar value of the loan was as follows:
|
Date |
Amount |
||
|
April 1, 2017 |
$ |
97,000 |
|
|
December 31, 2017 |
|
103,000 |
|
|
April 1, 2018 |
|
105,000 |
|
|
|
MC Qu. 39 How much foreign exchange gain or loss should be included...
How much foreign exchange gain or loss should be included in Shannon’s 2018 income statement?
Multiple Choice
Top of Form
·
$8,000 loss.
·
$2,000 loss.
·
$2,000 gain.
·
$1,000 gain.
·
$1,000 loss.
Bottom of Form
Problem 9-37 (LO 9-7, 9-8)
On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to sell 130,000 rubles in four months (on January 31, 2018) and receive $54,600 in U.S. dollars. Exchange rates for the ruble follow:
|
Date |
Spot Rate |
Forward Rate (to January 31, 2018) |
||||
|
October 1, 2017 |
$ |
0.38 |
|
$ |
0.42 |
|
|
December 31, 2017 |
|
0.41 |
|
|
0.44 |
|
|
January 31, 2018 |
|
0.43 |
|
|
N/A |
|
|
|
Sharp's incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901. Sharp must close its books and prepare financial statements on December 31.
a. Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a 130,000 ruble receivable arising from a sale made on October 1, 2017. Include entries for both the sale and the forward contract.
b. Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a firm commitment related to a 130,000 ruble sale that will be made on January 31, 2018. Include entries for both the firm commitment and the forward contract. The fair value of the firm commitment is measured by referring to changes in the forward rate.
rev: 05_07_2018_QC_CS-126565
Bottom of Form
Problem 9-7 (LO 9-2, 9-3)
Matthias Corp. had the following foreign currency transactions during 2017:
· Purchased merchandise from a foreign supplier on January 20 for the U.S. dollar equivalent of $62,700 and paid the invoice on April 20 at the U.S. dollar equivalent of $51,500.
· On September 1, borrowed the U.S. dollar equivalent of $309,000 evidenced by a note that is payable in the lender's local currency in one year. On December 31, the U.S. dollar equivalent of the principal amount was $327,000.
In Matthias's 2017 income statement, what amount should be included as a net foreign exchange gain or loss?
Multiple Choice
Top of Form
·
$18,000 gain
·
$11,200 gain
·
$29,200 loss
·
$6,800 loss
Bottom of Form
Problem 9-10 (LO 9-5)
On December 1, 2017, Ringling Company (a U.S.-based company) entered into a three-month forward contract to purchase 1,340,000 pesos on March 1, 2018. The following U.S. dollar per peso exchange rates apply:
|
Date |
Spot Rate |
Forward Rate (to March 1, 2018) |
||||
|
December 1, 2017 |
$ |
0.028 |
|
$ |
0.031 |
|
|
December 31, 2017 |
|
0.030 |
|
|
0.033 |
|
|
March 1, 2018 |
|
0.034 |
|
|
N/A |
|
|
|
Ringling's incremental borrowing rate is 17 percent. The present value factor for two months at an annual interest rate of 17 percent (1 percent per month) is 0.9723.
Which of the following correctly describes the manner in which Ringling Company will report the forward contract on its December 31, 2017, balance sheet?
Multiple Choice
Top of Form
·
As an asset in the amount of $3,909.
·
As an asset in the amount of $2,606.
·
As a liability in the amount of $1,303.
·
As a liability in the amount of $3,909.
Bottom of Form
Required information
SB Brisco Bricks purchases raw material from...
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:
|
|
|
|
|
|
|
May 8 |
Spot rate: |
$ |
1.25 |
|
|
May 31 |
Spot rate: |
$ |
1.26 |
|
|
Jun. 7 |
Spot rate: |
$ |
1.20 |
|
|
|
MC Qu. 5 For what amount should Brisco's...
For what amount should Brisco's Accounts Payable be credited on May 8?
Multiple Choice
Top of Form
·
$1,666,667.
·
$1,639,344.
·
$1,600,000.
·
$2,500,000.
·
$2,440,000.
Bottom of Form
Required information
SB Brisco Bricks purchases raw material from...
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:
|
|
|
|
|
|
|
May 8 |
Spot rate: |
$ |
1.25 |
|
|
May 31 |
Spot rate: |
$ |
1.26 |
|
|
Jun. 7 |
Spot rate: |
$ |
1.20 |
|
|
|
MC Qu. 6 How much Foreign Exchange Gain...
How much Foreign Exchange Gain or Loss should Brisco record on May 31?
Multiple Choice
Top of Form
·
$20,000 loss.
·
$80,000 gain.
·
$2,520,000 gain.
·
$80,000 loss.
·
$20,000 gain.
Bottom of Form
Required information
SB Brisco Bricks purchases raw material from...
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:
|
|
|
|
|
|
|
May 8 |
Spot rate: |
$ |
1.25 |
|
|
May 31 |
Spot rate: |
$ |
1.26 |
|
|
Jun. 7 |
Spot rate: |
$ |
1.20 |
|
|
|
MC Qu. 7 How much US $ will it cost Brisco to...
How much US $ will it cost Brisco to finally pay the payable on June 7?
Multiple Choice
Top of Form
·
$2,500,000.
·
$2,400,000.
·
$2,440,000.
·
$1,666,667.
·
$2,520,000.
Bottom of Form
