Accounting for Foreign Currency Transaction

Accounting for Foreign Currency Transaction

1. On December 1, 2006, Import Computers, Inc. purchased 10 personal computers from a Japanese firm for 200,000 Japanese yen. The exchange rate for the Japanese yen is P 1 = 2.22 yen on December 1 and P 1 = 2.70 yen on December 31. On its December income statement Import Computers should report a foreign exchange gain (loss) of:

A. P (96,000)

C. P (16,000)

B. P 96,000

D. P 16,000

2. On December 1, 2006, the Pinoy Company sells construction materials to a Japanese importer for 1,500,000 Yen, terms n/60. The relevant exchange rates are:December 1, 20061 Yen = P 0.45

December 31, 20061 Yen = P 0.47

January 30, 20071 Yen = P 0.40

On its income statement for the year ended December 31, 2006, Pinoy Company should report a foreign exchange gain (loss) of:A. P -0-

C. P 30,000B. P (30,000)

D. P 3,0003. On September 1, 2006, Atlantica Inc., a calendar year corporation, purchased car tires from a factory in Hongkong for 200,000 Hongkong dollars. The amount is payable in 60 days. The exchange rate for the Hongkong dollar has varies as follows:September 1, 20061 hkg$ = P 5.61

September 30, 20061 hkg$ = P 5.59

December 31, 20061 hkg$ = P 5.62

If Atlantica Inc. prepares quarterly income statements, the forex gain or loss for the quarters ended September 30 and December 31, respectively, amounts to:

A. P -0- and P 2,000 loss

C. P 4,000 loss and P 6,000 gainB. P -0- and P 2,000 gain

D. P 4,000 gain and P 6,000 loss4. PDA Corporation, had the following foreign currency transactions during 2006: Merchandise was purchased from a foreign supplier on January 10, 2006 for the Philippine peso equivalent of P 600,000. The invoice was paid on April 30, 2006, at the Philippine peso equivalent of P608,000.

On September 1, 2006, PDA Corporation borrowed the Philippine peso equivalent of P 3,000,000 evidenced by a note that was payable in the lenders local currency on September 1, 2007. On December 31, 2006, the Philippine peso equivalent of the principal amount and accrued interest were P 3,200,000 and P 120,000, respectively. Interest on the note is 10 percent per annum.

In PDAs 2006 income statement, what amount should be included as a forex loss?A. P 40,000

C. P 228,000

B. P 200,000

D. P 300,000

5. On October 1, 2006, Majika Company acquired goods from USA Company for $ 10,000, payable in US dollars on April 1, 2007. Spot rates on various dates follow:Transaction date$ 0.018 = P 1

Balance sheet date December 31, 2006$ 0.017 = P 1

Settlement date$ 0.020 = P 1

As a result of this transaction, Majika Company has a forex gain (loss) in 2006 and 2007 of (rounded):A. P (32,680) and P 88,235, respectively

C. P (100) and P 300, respectively

B. P 32,680 and P (88,235), respectively

D. P ( 10) and P 30, respectively

6. Bebang Company had a trade account receivable from a foreign customer stated in the local currency of the foreign customer. The trade account receivable for 900,000 local currency units (LCU) had been restated to P 315,000 in Bebangs June 30, 2006 balance sheet. On July 27, 2006, the account receivable was collected in full when the exchange rate was 1 LCU = P 0.3333333. The journal entry that Bebang prepares to record the collection of this trade account receivable is:A. Cash

P 300,000

Accounts receivable

P 300,000

B. Cash

P 300,000

Forex loss

15,000

Accounts receivable

P 315,000

C. Cash

P 300,000

Translation adjustment 15,000

Accounts receivable

P 315,000

D. Cash

P 315,000

Accounts receivable

P 315,0007. ELI Company, a Philippine company, purchased merchandise from a foreign supplier on November 5, 2006, for 50,000 foreign currency, when the selling spot rate was 1 foreign currency = P 0.4295. On ELIs December 31, 2006 year-end, the selling spot rate was P 0.4245. On January 15, 2007, ELI acquired 50,000 foreign currency at the selling spot rate of P 0.4345 and paid the invoice. What amount does ELI report in its income statement for the years 2006 and 2007 as foreign exchange gains or (losses)?A. P 250 and P (500), respectively

C. P -0- and P (250), respectively

B. P (250) and P -0-, respectively

D. P -0- and P -0-, respectively

8. On May 1, 2006, CB Export Corporation sold a quantity of durian fruit to a foreign customer for 100,000 foreign currency, payable in 30 days. On May 1, the spot rate is 1 FC = P 0.85 and the 30 day forward rate is 1 FC = P0.8415. On May 30, when the bill is paid, the spot rate is 1 FC = P 0.856. The sale of durian fruits should be recorded at:A. P 85,000

C. P 85,600B. P 84,150

D. P 117,6479. On June 30, 2006, Sweet Tooth Company purchases chocolate candies from a foreign supplier for 50,000 foreign currency, payable in 60 days. On June 30, 1 FC is worth P 0.6498; by August 30, the day of settlement, 1 FC is worth P 0.6256. The 60-day forward rate on June 30 is 1 FC = P 0.6612. Sweet Tooth should record the cost of the chocolate candies at:A. P 31,280

C. P 32,490

B. P 31,885

D. P 33,060

10. On March 31, 2006, HIYAS Company acquired a 30-day forward contract for 100,000 local currency units (LCU) of a foreign country. The contract was not designated to hedge. On April 30, 2006, HIYAS prepares adjusting entries and financial statements only at the end of its fiscal year, April 30. Relevant exchange rates for one unit of the local currency were as follows:

March 31, 2006 April 30, 2006

Spot rates:

Buying

SellingP 0.18

0.20P 0.19

0.22

Forward rates:

Contract maturing April 30, 2006P 0.25P 0.22

On April 30, 2006, forex gain (loss) to be recognized is:

A. P 3,000

C. P 2,000

B. P (3,000)

D. P 1,000

11. On November 2, 2006, Pedro Company, Philippine wholesaler, ordered merchandise from Indo Corporation of Indonesia. The merchandise is to be delivered to Pedro Company on January 30, 2007 at a price of 1,000,000 Rupiah. Also on November 2, Pedro hedged the foreign currency commitment with Indo Corporation by contracting with its bank to buy 1,000,000 Rupiah for delivery on January 30, 2005. Exchange rates for 1 Rupiah are:November 2, 2006December 31, 2006January 30, 2007

Spot rateP 0.0052P 0.0053P 0.0055

30-day forward rate 0.0053 0.0055 0.0056

90-day forward rate 0.0055 0.0056 0.0057

On December 31, 2006, forex gain (loss) to be recorded for the import transactions and the forward contract are:

A. P (5,000) and P 5,000

C. P (5,000) and P 10,000

B. P 5,000 and P (5,000)

D. P -0- and P -0-

12. DARNA Corporation, a Philippine importer, purchased merchandise from Star Company of Thailand for 100,000 Baht on March 1, 2006, when the spot rate for a Baht was P 1.630. The account payable denominated in Baht was not due until May 30, 2006, so DARNA immediately entered into a 90-day forward contract to hedge the transaction against exchange rates. The contract was made at a forward exchange rate of P 1.650. DARNA settled the forward contract and the account payable on May 30, when the spot rate for Baht was P 1.600. On the settlement of the forward contract on May 30, 2006, DARNA should record a forex gain (loss) of:

A. P 5,000

C. P 2,000

B. P (5,000)

D. P (2,000)

13. SM Corporation purchased merchandise from Lacoste Company of France for 1,000,000 Franc. The merchandise is received on December 1, 2006, with payment due in 60 days on January 30, 2007. Also on December 1, 2006, SM enters into a 60-day forward contract with Banco De Oro to purchase the necessary 1,000,000 Franc for delivery on January 30, 2007 to hedge the Lacoste transaction. Exchange rates for Franc on selected dates are as follows:December 1, 2006December 31, 2006January 30, 2007

Spot rateP 6.01P 6.16P 6.01

30-day forward rate 6.05 6.07 6.07

60-day forward rate 6.06 6.08 6.08

What is the net forex gain (loss) from this transaction and hedge that will be reported on SMs 2006 income statement?

A. P (130,000)

C. P 20,000

B. P 130,000

D. P (140,000)

14. Lucio Tan, a money changer speculate in foreign currency as his business. On October 1, 2006, Lucio bought a 180-day forward contract to purchase 5,000 US dollars at a forward rate of $1 = P 56.50 when the spot rate was P56.00. Other exchange rates were as follows:Spot rateForward rate for March 31, 2007

December 31, 2006P 56.30P 56.60

March 31, 2007 56.32

The forex gain (loss) recognized by Lucio from this forward contract is:A. P 1,500

C. P 500

B. P ( 900)

D. P (10,000)

15. The following information applies to DAKI Corporations sales of 10,000 foreign currency units under a forward contract dated November 1, 2006, for delivery on January 31, 2007:November 1, 2006December 31, 2006

Spot rateP 0.80P 0.83

30-day futures 0.79 0.82

90-day futures 0.78 0.81

DAKI entered into the forward contract to speculate in the foreign currency. In DAKIs income statement for the year ended December 31, 2006, what amount of forex loss should be reported from this forward contract?

A. P 100

C. P 200

B. P 300

D. P -0-

16. On December 12, 2006, UBAY Company entered into a forward contract to purchase 100,000 foreign currency in 90 days. The relevant exchange rates are as follows:Spot rateForward rate for March 12, 2007

December 12, 2006P 0.88P 0.90

December 31, 2006 0.98 0.93

Assuming that the forward contract is to hedge a commitment to purchase machinery being manufactured to UBAYs specifications. At December 31, 2006, what amount of foreign currency transaction gain (loss) should UBAY include from this forward contract?

A. P -0-

C. P 5,000

B. P 3,000

D. P 10,000