ADV. ACCT CONNECT STAND ALONE
13th Edition
ISBN: 9781266295744
Author: Hoyle
Publisher: MCG
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Chapter 9, Problem 24P
a.
To determine
Identify the effect of fluctuation in exchange rates on the 2017 B’s income statement.
b.
To determine
Identify the effect of fluctuation in exchange rates on 2018 B’s income statement.
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MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply:
Date
Spot Rate
Forward rate ( to march 31, 2018 )
December 1, 2017
$0.0035
$0.0034
December 31, 2017
0.0033
0.0032
March 31, 2018
0.0038
N/A
MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706. Assuming that MNC entered into a forward contract to sell 10 million South Korean won on December 1, 2017, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2017 resulting from a fluctuation in the value of the won? Choose the correct.a. No impact on net income.b. $58.80 decrease in net income.c. $2,000 decrease in net income.d. $1,941.20 increase in net income.
Turbo Corporation (a U.S.-based company) acquired merchandise on account from a foreign supplier on November 1, 2017, for 100,000 markkas. It paid the foreign currency account payable on January 17, 2018. The following exchange rates for 1 markka are known:November 1, 2017 $0.754December 31, 2017 0.742 January 15, 2018 0.747a. How does the fluctuation in exchange rates affect Turbo’s 2017 income statement?b. How does the fluctuation in exchange rates affect Turbo’s 2018 income statement?
On December 20, 2015, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign company at a price of 50,000 ostras. Payment received on January 10, 2016, Currency exchange rates for 1 ostra are as follows: December 20, 2015 $1.05, December 31, 2015 $1.02 and January 10, 2016 $0.98. How does the fluctuation in exchange rates affect Butanta's 2015 income statement? How does the fluctuation in exchange rates affect Butanta's 2016 income statement?
Chapter 9 Solutions
ADV. ACCT CONNECT STAND ALONE
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