Multiple Choice Questions
1. On January 1, 2010, Microspace, Inc., purchased $80,000 face value of the 5% bonds of Mail Frontier, Inc., at 107. The bonds mature on January 1, 2015. For the year ended December 31, 2015, Microspace received cash interest of
a. $2,000.
b. $3,000.
c. $4,000.
d. $5,000.
2. Return to Microspace, Inc.s bond investment in the preceding question. For the year ended December 31, 2013, Microspace received cash interest of $4,000. What was the interest revenue that Microspace earned in this period?
a. $3,000
b. $5,000
c. $2,880
d. $2,000
3. Providence Systems purchased inventory on account from Megasonic. The price was 100,000, and a yen was quoted at $0.0088. Providence paid the debt in yen a month later, when the price of a yen was $0.0093. Providence
a. Debited Inventory for $930.
b. Recorded a Foreign-Currency Transaction Gain of $50.
c. Debited Inventory for $880.
d. None of the above.
4. One way to hedge a foreign-currency transaction loss is to
a. Offset foreign-currency inventory and plant assets.
b. Collect in your own currency.
c. Pay debts as late as possible.
d. Pay in the foreign currency.
5. Foreign-currency transaction gains and losses are reported on the
a. Income statement.
b. Consolidation work sheet.
c. Balance sheet.
d. Statement of cash flows.
6. Consolidation of a foreign subsidiary usually results in a
a. Foreign-currency translation adjustment.
b. Gain or loss on consolidation.
c. LIFO/FIFO difference.
d. Foreign-currency transaction gain or loss.