Select the correct answer for each of the following questions.

1. Dale Inc., a U.S. company, bought machine parts from a German company on March 1, 20X1, for €30,000, when the spot rate for euros was $0.4895. Dale’s year-end was March 31, when the spot rate was $0.4845. On April 20, 20X1, Dale paid the liability with €30,000 acquired at a rate of $0.4945. Dale’s income statements should report a foreign exchange gain or loss for the years ended March 31, 20X1 and 20X2 of

20X1 20X2

a. $0 ......$0

b. $0 ......$150 loss

c. $150 loss ....$0

d. $150 gain .....$300 loss

2. Marvin Company’s receivable from a foreign customer is denominated in the customer’s local currency. This receivable of 900,000 LCUs has been translated into $315,000 on Marvin’s December 31, 20X5, balance sheet. On January 15, 20X6, the receivable was collected in full when the exchange rate was 3 LCU to $1. The journal entry Marvin should make to record the collection of this receivable is

3. On July 1, 20X1, Black Company lent $120,000 to a foreign supplier, evidenced by an interestbearing note due on July 1, 20X2. The note is denominated in the borrower's currency and was equivalent to 840,000 LCUs on the loan date. The note principal was appropriately included at $140,000 in the receivables section of Black's December 31, 20X1, balance sheet. The note principal was repaid to Black on the July 1, 20X2, due date when the exchange rate was 8 LCUs to $1. In its income statement for the year ended December 31, 20X2, what amount should Black include as a foreign currency transaction gain or loss on the note principal?

a. $0.

b. $15,000 loss.

c. $15,000 gain.

d. $35,000 loss.

4. If 1 Canadian dollar can be exchanged for 90 cents of U.S. currency, what fraction should be used to compute the indirect quotation of the exchange rate expressed in Canadian dollars?

a. 1.10/1.

b. 1/1.10.

c. 1/.90.

d. 0.90/1.

5. On July 1, 20X4, Bay Company borrowed 1,680,000 local currency units (LCUs) from a foreign lender evidenced by an interest-bearing note due on July 1, 20X5, which is denominated in the currency of the lender. The U.S. dollar equivalent of the note principal was as follows:

Date Amount

7/1/X4 (date borrowed) ..$210,000

12/31/X4 (Bay’s year-end). 240,000

7/1/X5 (date repaid).... 280,000

In its income statement for 20X5, what amount should Bay include as a foreign exchange gain or loss on the note principal?

a. $70,000 gain.

b. $70,000 loss.

c. $40,000 gain.

d. $40,000 loss.

6. An entity denominated a sale of goods in a currency other than its functional currency. The sale resulted in a receivable fixed in terms of the amount of foreign currency to be received. The exchange rate between the functional currency and the currency in which the transaction was denominated changed. The effect of the change should be included as a

a. Separate component of stockholders' equity whether the change results in a gain or a loss.

b. Separate component of stockholders' equity if the change results in a gain and as a component of income if the change results in a loss.

c. Component of income if the change results in a gain and as a separate component of stockholders' equity if the change results in a loss.

d. Component of income whether the change results in a gain or a loss.

7. An entity denominated a December 15, 20X6, purchase of goods in a currency other than its functional currency. The transaction resulted in a payable fixed in terms of the amount of foreign currency and was paid on the settlement date, January 20, 20X7. The exchange rates between the functional currency and the currency in which the transaction was denominated changed at December 31, 20X6, resulting in a loss that should

a. Not be reported until January 20, 20X7, the settlement date.

b. Be included as a separate component of stockholders' equity at December 31, 20X6.

c. Be included as a deferred charge at December 31, 20X6.

d. Be included as a component of income from continuing operations for 20X6.

Transcribed Image Text:

Debit Credit 300,000 Foreign Currency Units Accounts Receivable a. 300,000 Foreign Currency Units Exchange Loss Accounts Receivable 300,000 15,000 315,000 Foreign Currency Units Deferred Exchange Loss Accounts Receivable 300,000 15,000 C. 315,000 Foreign Currency Units Accounts Receivable d. 315,000 315,000 b.