Advanced Accounting

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Advanced Accounting Assignment Week 7

1. Which of the following combinations correctly describes the relationship between foreign currency transactions, exchange rate changes, and foreign exchange gains and losses?

Answer: c. Import purchase, Depreciates and Gain

3. On October 1, 2013, Mud Co., a U.S. company, purchased parts from Terra, a Portuguese company, with payment due on December 1, 2013. If Mud’s 2013 operating income included no foreign exchange gain or loss, the transaction could have

Answer: b. Been denominated in U.S. dollars.

4. In Post’s 2014 consolidated income statement, how much should it report as a foreign exchange loss?

Answer: c. $15,000.  

5. In its 2014 income statement, what amount should Houghton include as a foreign exchange gain or loss on the note?

Answer: d. $10,000 loss.

6. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?

Answer: d. Increase, Decrease

10. Which of the following correctly describes the manner in which Barnum Company will report the forward contract on its December 31, 2013, balance sheet?

Answer: d. As a liability in the amount of $4,901.50.

11. Assuming that MNC did not enter into a forward contract, how much foreign exchange gain or loss should it report on its 2013 income statement with regard to this transaction?

Answer: c. $2,000 loss.

12. Assuming that MNC entered into a forward contract to sell 10 million South Korean won on December 1, 2013, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2013 resulting from a fluctuation in the value of the won?

Answer: b. $58.80 decrease in net income.
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