Exchange Gain / Loss; Spot Rate; Income Statements;

1) On June 1, 20X1, Jordan Company received merchandise from a British company with an invoice for 40,000 British pounds.  The spot rate for the pound on June 1 was $1.56 but on August 1 when the invoice was paid, the spot rate for the pound was $1.60.  At year-end the spot rate for the British pound was $1.58.  At what amount should Jordan Company report an exchange gain or (loss) on the transaction for 20X1?
a) $(1,600)
b) $(800)
c) $800
d) $1,600

2) On May 1, 20X1, Cosmo Corporation purchased Merchandise from a Danish firm for 396,000 Danish Krone when the spot rate for Krone was 5.200 Krone per dollar.  The account payable was denominated in Krone.  Cosmo settled the account on September 1 when the spot rate for Krone was 5.345 Krone per dollar.  How much cash will Cosmo have to disburse to settle the account?
a) $74,087.93
b) $76,153.85
c) $2,059,200.00
d) $2,116,620.00


Use the following information for questions 3 and 4.
On November 2, 20X1, Broadhurst Corporation entered into a 90-day contract to sell 220,000 shekels in a transaction accounted for as a speculation.  The spot rate for shekels on November 2 was $0.37 and the current quotation for 90-day futures was $0.34.  On December 31, 20X1, the spot rat was $0.39 and the quotation for 30-day futures was $0.35.

3) Broadhurst's entry on November 2, 20X1 includes a:
a) Debit to Contract Receivable denominated in shekels for $74,800
b) Credit to Contracts Payable denominated in shekels for $74,800
c) Debit to Contract Receivables denominated in shekels for $77,000
d) Credit to Contract Payables denominated in Shekels for $77,000

4) What amount of exchange gain or (loss) will be included in Broadhurst's 20X1 income?
a) $(4,400)
b) $(2,200)
c) $2,200
d) $4,40.

5) Hoyt Corporation's balance sheet at December 31, 20X1 included a $40,800 account receivable from Ryerson Corporation of Australia.  The account receivable is denominated as 60,000 Australian dollars (A$).  What entry should Hoyt make on January 16, 20X1 when the account receivable is collected and the exchange rate for A$ is $0.67?
a) Cash  40,200
Accounts Receivable 40,200
b) Cash  40,200
Exchange Loss  600
Accounts Receivable  40,800
c) Cash  40,800
Accounts Receivable 40,800
d) Cash  41,400
Accounts Receivable  40,800
Exchange Gain  600


6) On December 5, 20X1, Melnick Corporation, a US firm, bought inventory items from Imetal Corporation on Norway for 1,000,000 Norwegian krone when the spot rate for krone was $0.168.  At Melnick's December 31, year-end, the spot rate was $0.167.  On January 4, 20X2, Melnick purchased 1,000,000 krone  for $167,500 and paid the invoice.  How much gain or (loss) should Melnick report in its 20X1 and 20X2, respectively, income statements?
a) $(1,000) and $500
b) $0 and $(500)
c) $0 and $500
d) $1,000 and $(500)

Use the following information for Questions 7 & 8.
On November 1, 20X1, Meade Corporation sold merchandise to Hirsch Corporation, a Swiss firm.  Meade measures and records the account receivable from the sale at $156,000.  Hirsch paid for this account on November 30, 20X1.  Spot rates for Swiss francs on November 1 and November 30, respectively, were $0.80 and $0.78.

7) If the sale of the merchandise is denominated in francs, the November 30 entry to record the receipt of payment from Hirsch will include a:
a) Credit to Accounts Receivable for $152,100
b) Credit to Exchange Gain for $3,900
c) Debit to cash for $156,000
d) Debit to Exchange Loss for $3,900

8) If the sale of merchandise is denominated in dollars, the November 30 entry to record receipt of the payment from Hirsch will include a:
a) Debit to cash for $156,000
b) Debit to cash for $152,100
c) Credit to Exchange Gain for $3,900
d) Credit to Accounts Receivable for $152,100

Use the following information for Questions 9 and 10.
On October 2, 20X1, Kent Corporation borrowed 300,000 British pounds from a London bank, evidenced by an interest-bearing not payable due in one year.  The not is payable in pounds.  Exchange rate for pounds are:3

October 2, 20X1 $1.60
December 31, 20X1 $1.62
October 2, 20X2 $1.56

9) What exchange gain or loss will appear on Kent's 20X1 income statement?
a) A loss of $12,000
b) A loss of $6,000
c) A gain of $6,000
d) A gain of $12,000

10) What is the final amount of the loan payable that Kent will show on its books, in dollars, just before it repays the loan?
a) $468,000
b) $472,000
c) $480,000
d) $486,000

11) When an Account Payable or Receivable in foreign currency appears in the unadjusted trial balance of a U.S. company at year-end, its balance is converted to U.S. dollars using the:
a) Current exchange rate at the end of the year
b) Exchange rate which was current when the Accounts Payable or Receivable was originally entered
c) Projected exchange rate on the settlement date
d) Average exchange rate for the year.

12) The exchange rates between the British pound and the US dollar were as follows:

November 1 1pound=$1.60
December 1 1pound=$1.61
January 1 1pound=$1.64
February 1 1pound=$1.66

This chart shows a:
a) Strengthening British pound which makes it less expensive for Americans to buy British goods
b) Weakening British pound which makes it less expensive for Americans to buy British goods
c) Strengthening British pounds which makes it more expensive for Americans to buy British goods
d) Weakening British pound which makes it more expensive for Americans to buy British goods

13) The exchange rates between the British pound and the US dollar were as follows:

November 1 $1= 0.6250pound
December 1 $1= 0.6211pound
January 1 $1= 0.6098pound
February 1 $1= 0.6024pound

This chart shows a:
a) Strengthening British pound-British goods are less expensive in US.
b) Weakening British pound-British goods are less expensive in US.
c) Weakening British pound-British goods are more expensive in US.
d) Strengthening British pound-British goods are more expensive in US

14) A US importer that purchased merchandise from a South Korean firm would be exposed to a net exchange gain on the unpaid balance if the:
a) Dollar weakened relative to the Korean won and the won was the denominated currency
b) Dollar weakened relative to the Korean won and the dollar was the denominated currency
c) Dollar strengthened relative to the Korean won and the won was the denominated currency
d) Dollar strengthened relative to the Korean won and the dollar was the denominated currency

15) A US exporter that sold merchandise to a South Korean firm would be exposed to a net exchange gain on the unpaid receivable if the:
a) Dollar weakened relative to the Korean won and the won was the denominated currency
b) Dollar weakened relative to the Korean won and the dollar was the denominated currency
c) Dollar strengthened relative to the Korean won and the won was the denominated currency
d) Dollar strengthened relative to the Korean won and the dollar was the denominated currency

Attached file(s):

RayAccounting-4051.doc  View File