Advanced Financial Accounting
12th Edition
ISBN: 9781259916977
Author: Christensen, Theodore E., COTTRELL, David M., Budd, Cassy
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Chapter 11, Problem 11.14.4E
To determine
Foreign exchange rate: The rate at which currency of one country is changed to currency of another country is called foreign exchange rate. Mainly there are two rate, i.e., direct exchange rate and indirect exchange rate.
Foreign exchange gain or loss: Foreign exchange gain or loss arises when there is selling or buying of any goods and services in foreign currency.
To choose: The correct option.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
1.
On September 1, 20X1, Cano & Company, a U.S. corporation, sold merchandise to a foreign firm for 250,000 euros. Terms of the sale require payment in euros on February 1, 20X2. On September 1, 20X1, the spot exchange rate was $1.30 per euro. At Cano’s year-end on December 31, 20X1, the spot rate was $1.28, but the rate increased to $1.33 by February 1, 20X2, when payment was received.
Required:
What foreign currency transaction gain or loss should be recorded in 20X1?
What foreign currency transaction gain or loss should be recorded in 20X2?
Amount
Gain / Loss
1.
Foreign currency transaction gain (loss) 20X1
2.
Foreign currency transaction gain (loss) - 20X2
Required information Skip to question 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: December 5, 20X8 1 riyal = $ 0.265 December 31, 20X8 1 riyal = 0.262 January 10, 20X9 1 riyal = 0.264 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. Accounts Payable (SAR) 300 Foreign Currency Transaction Gain 300B. Accounts Payable (SAR) 100 Foreign Currency Transaction Gain 100 C. Foreign Currency Transaction Loss 300 Accounts Payable (SAR) 300 D. Foreign Currency Transaction Loss 200 Accounts Payable (SAR) 200
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:
$500 loss
$500 gain
$378 gain
$5,500 loss
Chapter 11 Solutions
Advanced Financial Accounting
Ch. 11 - Prob. 11.1QCh. 11 - Prob. 11.2QCh. 11 - The U.S. dollar strengthened against the European...Ch. 11 - Prob. 11.4QCh. 11 - Prob. 11.5QCh. 11 - How are assets and liabilities denominated in a...Ch. 11 - Prob. 11.7QCh. 11 - Prob. 11.8QCh. 11 - Prob. 11.9QCh. 11 - Distinguish between an exposed net asset position...
Ch. 11 - Prob. 11.11QCh. 11 - Prob. 11.12QCh. 11 - Effects of Changing Exchange Rates Analysis Since...Ch. 11 - Prob. 11.2CCh. 11 - Prob. 11.5CCh. 11 - Prob. 11.1ECh. 11 - Prob. 11.2ECh. 11 - Basic Understanding of Foreign Exposure The...Ch. 11 - Prob. 11.5ECh. 11 - Prob. 11.6ECh. 11 - Prob. 11.7ECh. 11 - Adjusting Entries for Foreign Currency Balances...Ch. 11 - Prob. 11.9ECh. 11 - Prob. 11.10ECh. 11 - Prob. 11.11.1ECh. 11 - Prob. 11.11.2ECh. 11 - Prob. 11.11.3ECh. 11 - Prob. 11.11.4ECh. 11 - Prob. 11.11.5ECh. 11 - Prob. 11.11.6ECh. 11 - Prob. 11.11.7ECh. 11 - Prob. 11.12ECh. 11 - Prob. 11.13ECh. 11 - Prob. 11.14.1ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.3ECh. 11 - Prob. 11.14.4ECh. 11 - Prob. 11.14.5ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.7ECh. 11 - Prob. 11.15ECh. 11 - Prob. 11.16AECh. 11 - Prob. 11.17ECh. 11 - Prob. 11.18ECh. 11 - Prob. 11.19.1ECh. 11 - Prob. 11.19.2ECh. 11 - Prob. 11.19.3ECh. 11 - Prob. 11.19.4ECh. 11 - Prob. 11.19.5ECh. 11 - Prob. 11.20.1PCh. 11 - Prob. 11.20.2PCh. 11 - Prob. 11.20.3PCh. 11 - Prob. 11.20.4PCh. 11 - Prob. 11.20.5PCh. 11 - Foreign Sales Tex Hardware sells many of its...Ch. 11 - Prob. 11.22PCh. 11 - Prob. 11.23.1PCh. 11 - Prob. 11.23.2PCh. 11 - Prob. 11.24PCh. 11 - Prob. 11.25PCh. 11 - Prob. 11.26PCh. 11 - Prob. 11.27.1PCh. 11 - Prob. 11.27.2PCh. 11 - Prob. 11.27.3PCh. 11 - Prob. 11.28APCh. 11 - Prob. 11.29.1BPCh. 11 - Prob. 11.29.2BPCh. 11 - Prob. 11.29.3BPCh. 11 - Prob. 11.29.4BPCh. 11 - Prob. 11.29.5BPCh. 11 - Prob. 11.29.6BPCh. 11 - Prob. 11.30BPCh. 11 - Prob. 11.31BPCh. 11 - Matching Key Terms Match the items in the lefthand...
Knowledge Booster
Similar questions
- Peerless Corporation (a U.S. company) made a sale to a foreign customer on December 15, 20X1 for 125,000 crowns. It received payment on January 15, 20X2. The following exchange rates for 1 crown apply: December 15 $ 0.61 December 31 0.65 January 15 0.60 How does the fluctuation in exchange rates affect Peerless’s 20X1 income statement?arrow_forwardOn March 1, 20x1, ABC Co. sold inventory to a foreign company for FC 1,000,000 (FC means foreign currency) when the spot exchange rate is FC 40: ₱1. The payment is due on April 1, 20x1. ABC Co. is concerned about the possible fluctuation in exchange rates, so on this date, ABC Co. entered into a forward contract to sell FC 1,000,000 for ₱25,000 to a broker. According to the terms of the forward contract, if FC 1,000,000 is worth less than ₱25,000 on April 1, 20x1, ABC Co. shall receive from the broker the difference; if it is worth more than ₱25,000, ABC Co. shall pay the broker the difference. If the exchange rate on April 1, 20x1 is FC35: ₱1, how much is the net cash settlement? 3,571 receipt 3,571 payment 4,231 receipt 4,231 payment If the exchange rate on April 1, 20x1 is FC50: ₱1, how much is the net cash settlement? 5,000 payment 5,000 receipt 6,223 payment 6,223 receipt If the exchange rate on March 31, 20x1 is FC45: ₱1, how much is the fair value of the…arrow_forward4) Brief, Inc., had a receivable from a foreign customer that is payable in the customer’s local currency. On December 31, 2020, Brief correctly included this receivable for 200,000 local currency units (LCU) in its balance sheet at $110,000. When Brief collected the receivable on February 15, 2021, the U.S. dollar equivalent was $120,000. In Brief’s 2021 consolidated income statement, how much should it report as a foreign exchange gain? a) $–0– b)$10,000 c) $15,000 d) $25,000arrow_forward
- On November 1, 20X6, Smith Imports Incorporated contracted to purchase teacups from England for £50,000. The teacups were to be delivered on January 30, 20X7, with payment due on March 1, 20X7. On November 1, 20X6, Smith entered into a 120-day forward contract to receive 50,000 pounds at a forward rate of £1 = $1.55. The forward contract was acquired to hedge the financial component of the foreign currency commitment. Additional Information for the Exchange Rate Assume the company uses the forward rate in measuring the forward exchange contract and for measuring hedge effectiveness. Spot and exchange rates follow: Date Spot Rate Forward Rate for March 1, 20X7 November 1, 20X6 £1 = $1.60 £1 = $ 1.55 December 31, 20X6 £1 = 1.63 £1 = 1.60 January 30, 20X7 £1 = 1.55 £1 = 1.56 March 1, 20X7 £1 = 1.545 Required: b. Prepare all journal entries from November 1, 20X6, through March 1, 20X7, for the purchase of the teacups, the forward exchange contract, and the foreign…arrow_forwardKA. Mint Corporation has several transactions with foreign entities. Each transaction is denominated in the local currency unit (LCU) of the country in which the foreign entity is located. On November 2, 20X8, Mint purchased confectionary items on account from 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, (Mint’s accounting year end) when the exchange rate has increased to 1 LCU = $1.10. On January 29, 20X9 the account was settled with Mint’s payment of LCU 23,000 when the exchange rate decreased to 1 LCU = $1.07 Required: Record all journal entries for the 1) Transaction date, 2) Yearend adjusting entry, and 3) Settlement date.arrow_forwardA foreign operation has the following local inflation rates: Year 1: 10% Year 2: 20% Year 3: 30% Year 4: 10% Year 5: 15% a. What is the applicable cumulative inflation rate that should be used for reporting as of end of year 5? b. What method will be used for remeasurement or translation of the foreign operation’s foreign currency financial statements? ANSWER A AND B BOTH PLEASE 2. XYZ, a US company has a subsidiary in Korea. The Korean sub sells inventory to a Japanese company with the sale denominated in US dollars. Between the date of sale and the date, the receivable is collected the Korean won strengthens 10% against the US dollar. Explain if there is a foreign exchange gain or loss or no FX impact and why? Answer 1 and 2 allarrow_forward
- 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: December 5, 20X8 1 riyal = $ 0.265 December 31, 20X8 1 riyal = 0.262 January 10, 20X9 1 riyal = 0.264 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. Accounts Payable (SAR) 300 Foreign Currency Transaction Gain 300 B. Accounts Payable (SAR) 100 Foreign Currency Transaction Gain 100 C. Foreign Currency Transaction Loss 100 Accounts Payable (SAR) 100D. Foreign Currency Transaction Loss 200 Accounts Payable (SAR) 200arrow_forwardOn March 1, Laton Products (a U.S. firm) purchased manu-facturing inputs from a Mexican supplier for 20,000 pesos, payable on June 1. The exchange rate for pesos on March 1was $0.17. If the exchange rate increases to $0.19 on June 1,what amount of gain or loss would be reported by Latonrelated to the currency exchange?a. $400 gain.b. $200 loss.c. $400 loss.d. $200 gain.arrow_forwardOn December 1, 20X1, Rone Imports, a U.S. company, purchased clocks from Switzerland for 15,000 francs (SFr) to be paid on January 15, 20X2. Rone’s fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are December 1, 20X1 1 SFr = $0.70 December 31, 20X1 1 SFr = 0.66 January 15, 20X2 1 SFr = 0.68 Required: In which currency is the transaction denominated? Prepare journal entries for Rone to record the purchase, the adjustment on December 31, and the settlemenarrow_forward
- On May 1, 20X1, Aero Electric Corporation, a U.S. company, purchased goods from Neon Circuit Corporation, a British company, on account for £55,000. Aero Electric entered into a 180-day forward exchange contract to offset its exposed foreign currency liability. On the purchase date, the spot rate was $1.57 per British pound and the forward exchange rate was $1.62 per pound. Which of the following are true of the journal entry recorded for the forward contract on Aero Electric's books? (Select all that apply) Group of answer choices Debit Foreign Currency Receivable from Exchange Broker (£) for $89,100. Credit Dollars Payable to Exchange Broker ($) for $86,350. Credit Dollars Payable to Exchange Broker ($) for $89,100. Debit Foreign Currency Receivable from Exchange Broker (£) for $86,350.arrow_forwardMyway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9, with settlement to be in 60 days. On the same date, Alman entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were: January 1 (1 C$ = $0945); March 1 (1C$ = $0.930). Based on the preceding information, the entry to revalue foreign currency payable to current U.S. dollar value on March 1 will have: A. a credit to Foreign Currency Transaction Gain for $1,500. B. a debit to Foreign Currency Transaction Loss for $2,500. C. a debit to Foreign Currency Transaction Loss for $1,500. D. a credit to Foreign Currency Transaction Gain for $1,000.arrow_forward(a) ABC Co has a year end of 31 December 20X1 and uses the dollar ($) as its functional currency. On 25 October 20X1 ABC Co buys goods from a Swedish supplier for Swedish Krona (SWK) 286,000. Rates of exchange: 25 October 20X1 $1 = SWK 11.16 16 November 20X1 $1 = SWK 10.87 31 December 20X1 $1 = SWK 11.02 Required: Show the accounting treatment for the above transactions if: (a) A payment of SWK286,000 is made on 16 November 20X1. (b) The amount owed remains outstanding at the year-end date.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you