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1Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHallAdvancedAccounting,11e(Beams/Anthony/Bettinghaus/Smith)Chapter12DerivativesandForeignCurrency:ConceptsandCommonTransactionsMultipleChoiceQuestions1)OnMay1,2011,DeerfieldCorporationpurchasedmerchandisefromaGermanfirmfor78,000euroswhenthespotratefortheeurowas1.48europerdollar.Theaccountpayablewasdenominatedintheeuro.DeerfieldsettledtheaccountonAugust1whenthespotratefortheeurowas1.39europerdollar.HowmuchcashwillDeerfieldhavetodisbursetosettletheaccount?A)$52,702.72B)$56,115.11C)$108,420.00D)$115,440.00Answer:BExplanation:B)78,000euro/1.39europerdollar=$56,115.11Objective:LO4Difficulty:Easy2)CassCorporation'sbalancesheetatDecember31,2011includeda$48,480accountreceivablefromRedmunCorporationofMexico.Theaccountreceivablewasdenominatedas600,000Mexicanpesos.WhatentrydidCassmakeonJanuary16,2012whentheaccountreceivablewascollectedandtheexchangerateforthepesowas$.09?A)Cash54,000AccountsReceivable54,000B)Cash54,000ExchangeGain5,520AccountsReceivable48,480C)Cash48,480AccountsReceivable48,480D)Cash48,480ExchangeLoss5,520AccountsReceivable54,000Answer:BExplanation:B)600,000×$0.09=$54,000;$54,000-$48,480=$5,520gainObjective:LO5Difficulty:Moderate2Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHall3)TheexchangeratesbetweentheAustraliandollarandtheU.S.dollarwereasfollows:Jun11$AUS=$.8328USJul11$AUS=$.8356USAug11$AUS=$.9111USThischartshowsaA)strengtheningAustralianDollarwhichmakesitlessexpensiveforAmericanstobuyAustraliangoods.B)weakeningAustraliandollarwhichmakesitlessexpensiveforAmericanstobuyAustraliangoods.C)strengtheningAustraliandollarwhichmakesitmoreexpensiveforAmericanstobuyAustraliangoods.D)weakeningAustraliandollarwhichmakesitmoreexpensiveforAmericanstobuyAustraliangoods.Answer:CObjective:LO3Difficulty:Easy4)Withrespecttoexchangerates,whichofthefollowingstatementsistrue?A)Anofficialexchangerateisthemarketrateresultingfromthesupplyanddemandforacurrency.B)Afloatingexchangerateisthemarketrateresultingfromthesupplyanddemandforacurrency.C)Agovernmentcannotsetanexchangeratefortheircurrencythatishigher(weakenstheircurrency)thanthequotedinterbankmarketrate.D)Agovernmentcannotsetanexchangeratefortheircurrencythatislower(strengthenstheircurrency)thanthequotedinterbankmarketrate.Answer:BObjective:LO3Difficulty:Easy5)AU.S.importerthatpurchasedmerchandisefromaSouthKoreanfirmwouldbeexposedtoanetexchangegainontheunpaidbalanceiftheA)dollarweakenedrelativetotheKoreanwonandthewonwasthedenominatedcurrency.B)dollarweakenedrelativetotheKoreanwonandthedollarwasthedenominatedcurrency.C)dollarstrengthenedrelativetotheKoreanwonandthewonwasthedenominatedcurrency.D)dollarstrengthenedrelativetotheKoreanwonandthedollarwasthedenominatedcurrency.Answer:CObjective:LO3Difficulty:Easy3Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHallUsethefollowinginformationtoanswerthequestion(s)below.OnNovember1,2010,RolleksCorporationsoldmerchandisetoWatchemCorporation,aSwissfirm.Rolleksmeasuredandrecordedtheaccountreceivablefromthesaleat$107,100.WatchempaidforthisaccountonNovember30,2010.SpotratesforSwissfrancsonNovember1andNovember30,respectively,were$1.05and$1.02.6)IfthesaleofthemerchandisewasdenominatedinSwissfrancs,theNovember30entrytorecordthereceiptofpaymentfromWatchemincludedaA)credittoAccountsReceivablefor$104,040.B)credittoExchangeGainfor$3,060.C)debittoCashfor$107,100.D)debittoExchangeLossfor$3,060.Answer:DExplanation:D)Underlyingcurrencyvalue:$107,100/1.05dollarsperfranc(sf)=102,000sfNovember30valueofreceivableat1.02dollarsperfranc(sf)=$104,040Receivablerecordedat$107,100107,100Decreaseinvalueofreceivable(loss)=(3,060)Objective:LO5Difficulty:Moderate7)Ifthesaleofmerchandiseisdenominatedindollars,theNovember30entrytorecordreceiptofthepaymentfromWatchemincludedaA)credittoAccountsReceivablefor$104,040.B)credittoExchangeGainfor$3,060.C)debittoCashfor$107,100.D)debittoExchangeLossfor$3,060.Answer:CExplanation:C)Ifasaleisdenominatedindollars,andRolleksrecordedthesaleindollarsat$107,100,thentherewillbenogainorlossonRolleks'books.TheriskofgainorlossnowlieswiththeSwisscompany,Watchem.Objective:LO5Difficulty:Moderate4Copyright©2012PearsonEducation,Inc.PublishingasPrenticeHall8)OnDecember5,2010,UncaCorporation,aU.S.firm,boughtinventoryitemsfromSkagerrakCorporationofNorwayfor1,000,000Norwegiankronerwhenthespotrateforkronerwas$0.166.Thepurchasewasdenominatedinkroner.AtUnca'sfiscalyearend,December31,2010,thespotratewas$0.171.OnJanuary4,2011,Uncapurchased1,000,000kronerfor$167,500andpaidtheinvoice.Howmuchgainor(loss)didUncareportinits2010and2011incomestatements,respectively?A)$(5,000)and$1,500B)$0and($1,500)C)($5,000)and$3,500D)$0and($3,500)Answer:CExplanation:C)Accountspayable,Dec05,20101,000,000×$0.166=$166,000Accountspayable,Dec31,20101,000,000×$0.171=$171,000Loss=$5,000Accountspayable,Dec31,2010=$171,000Accountspayable,atsettlement=$167,500Gain=$3,500Objective:LO5Difficulty:ModerateUsethefollowinginformationtoanswerthequestion(s)below.OnOctober4,2010,SootyCorporationborrowed250,000Brit