EXERCISE $12-4$

Multiple Choice LO $2$LO $4$LO $6$

Select the best answer for each of the following.

A forward contract is a hedge of an identifiable foreign currency commitment if

The forward contract is designated as$,$ and is effective as$,$ a hedge of a foreign currency commitment.

The foreign currency commitment is firm.

The amount of the forward contract is equal to the amount of the commitment.

Both $($a$)$ and $($b$).$

Both $($a$)$ and $($c$).$

The Carnival Company has a receivable from a foreign customer that is payable in the local currency of the foreign customer. The account receivable for $800,000$ local currency units $($LCU$)$ has been translated into $$280,000$ on Carnival$$s December $31,2019,$ balance sheet. On January $15,2020,$ the receivable was collected in full when the exchange rate was $4$ LCU to $$1.$ What journal entry should Carnival make to record the collection of this receivable?

$($a$)$ Cash

$200,000$

Accounts Receivable

$200,000$

$($b$)$ Cash $200,000$

Transaction Loss $80,000$

Accounts Receivable $280,000$

$($c$)$ Cash $200,000$

Deferred Transaction Loss $80,000$

Accounts Receivable $280,000$

$($d$)$ Cash $280,000$

Accounts Receivable $280,000$

A foreign currency transaction to a company domiciled in the United States is a transaction in which the amount is

Measured in a foreign currency.

Denominated in U$.$S$.$ dollars.

Denominated in a foreign currency.

Measured in U$.$S$.$ dollars.

A direct exchange quotation is one in which the exchange rate is quoted

In terms of how many units of the domestic currency can be converted into one unit of foreign currency.

In terms of how many units of the foreign currency can be converted into one unit of the domestic currency.

For the future delivery of currencies exchanged.

For the immediate delivery of currencies exchanged.