Concept of accounting for merchandise through short questions and journal entries.
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 rate 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 Receivable denominated in shekels for $77,000.
d. credit to Contracts Payable 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 $.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 of 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)
7. Parker has a foreign subsidiary, Siemen Corporation of Germany, whose functional currency is the euro. At December 31, 19X2, Siemen has an account receivable denominated in British pounds. Which one of the following statements is true?
a. Because all accounts of the subsidiary are translated into US dollars at the current rate, the Account Receivable is not adjusted on the subsidiary's books before translation.
b. The Account Receivable is remeasured into the functional currency and emeasurement obviates translation.
c. The Account Receivable is first adjusted to reflect the current exchange rates in euros and then translated at the current rate into dollars.
d. The Account Receivable is adjusted to euros at the current exchange rate and any resulting gain or loss is included as a translation adjustment in the stockholders' equity section of the subsidiary's separate balance sheet.
8. Packer Corporation's wholly-owned Canadian subsidiary has a Canadian dollar functional currency. In translating its account balances into US dollars for reporting purposes, which one of the following accounts would be translated at historical exchange rates?
a. Inventories
b. Notes Payable
c. Capital Stock
d. Retained Earnings
9. Which one of the following factors would not lead to a presumption that the local currency of a foreign subsidiary is the functional currency?
a. sales prices are determined by local competition
b. labor and materials are primarily local costs
c. financing is denominated primarily in the currency of the foreign subsidiary
d. the sales market is primarily in the country of the parent company
10. The following assets of Bacon Corporation's French subsidiary have been converted into US dollars at the following exchange rates:.
Current
|
Rates
|
Historical
|
|
|
Rates
|
|
|
|
Accounts receivable
|
$850,000
|
$875,000
|
|
Inventories
|
600,000
|
575,000
|
|
Plant assets
|
1,200,000
|
900,000
|
|
Totals
|
$2,650,000
|
$2,350,000
|
If the functional currency of the subsidiary is the US dollar, the assets should be reported in the consolidated financial statements of Bacon Corporation and Subsidiary in the total amount of:
a. $2,325,000.
b. $2,350,000.
c. $2,375,000.
d. $2,650,000.