1. A U.S. parent owns a subsidiary in France, the subsidiary's accounts are maintained in euros, and...

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Question:

1. A U.S. parent owns a subsidiary in France, the subsidiary's accounts are maintained in euros, and its functional currency is the U.S. dollar. During the year, the euro has weakened against the U.S. dollar (U.S.$/? rate has declined). Which one of the subsidiary's transactions below increases the amount of remeasurement losses reported when the subsidiary's accounts are translated to U.S. dollars?

A. Inventory purchases B. Depreciation expense C. Sale of equity securities D. Sales revenue

2. On October 25, 2020, a U.S. company sold merchandise on credit to a customer in Spain at an invoice price of ?1,000, when the exchange rate was $1.25/?. On December 31, 2020, the U.S. company's year-end, the exchange rate was $1.257/?. On February 1, 2021, when the exchange rate was ?1.23, the U.S. company received ?1,000 in payment for the merchandise. In 2020, the U.S. company reports sales revenue of

A. $1,257 B. $1,000 C. $1,230 D. $1,250

3. Use the information on the U.S. dollar value of the New Zealand dollar to answer the following question(s).

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On March 28, 2020, a U.S. company issues a purchase order to buy merchandise for NZ$100,000. The company will pay the supplier on June 28, 2020, so on March 28, the company enters a forward contract to purchase NZ$100,000 on June 28. The company takes delivery of the merchandise on May 2, 2020. On June 28, 2020, the company acquires NZ$100,000 using the forward contract and pays the supplier. The company sells the merchandise later in the year. The company's accounting year ends December 31. What is the net effect on 2020 income of exchange rate changes due to the merchandise purchase and hedge?

A. no effect

B. $500 loss

C. $2,500 loss

D. $300 loss