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Multiple Choice: September 30
Multiple Choice: September 30
Multiple Choice: September 30
Multiple Choice
19-1: d.
19-2: c.
19-3: d.
September 30:
Forex rate, September 1 P 5.61
Forex rate, September 30 5.59
Decrease in forex rate P 0.02
December 31:
Forex rate, October 1 P 5.59
Forex rate, December 30 5.62
Increase in forex rate P 0.03
19-4: c.
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19-5: a.
19-6: b.
19-7: a.
2004
Forex rate, 11/5/04 P 0.4295
Forex rate, 12/31/04 0.4245
Decrease in forex rate P 0.0050
Payable in foreign currency 50,000
Forex gain P 250
2005
Forex rate, 12/31/04 P 0.4245
Forex rate, 1/15/05 0.4345
Decrease in forex rate P 0.0100
Payable in foreign currency 50,000
Forex loss P (500)
19-10: b
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19-11: d. forex gain (loss) on purchase commitments is based on the changes in the forward rates.
On December 31, 2004, no changes in forward rates occurred, so no forex gains (losses) are to be
recognized on December 31, 2004 under both transactions.
19-12: b.
19-13: d.
19-14: b.
19-15: a.
19-17: c
Gain from increase in intrinsic value of put option 100
Loss from decrease in fair value of available for sale securities (100)
Loss from decrease in time value of the option (60)
Net loss on hedging activity 12/31/07 (60)
19-18: a
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19-19: a
12/01/08: A$ 70,000/P42,000= 1.667 A$ to P1.00
12/31/08: A$ 70,000/P41,700= 1.679 A$ to P1.00
19-21: a, The balance will not change, because it is denominated in Philippine peso.
19-22: a
P82,000/KRW 400,000 = P.205
The P82,000 is the amount of the peso payable to bank. This amount is computed
using the forward rate.
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Problems
Problem 19-1
Foreign Foreign
Currency Currency
Accounts Accounts Transactions Transactions
Receivable Payable Exchange Loss Exchange Gain
Problem 19-2
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b. May 1 Inventory (or purchases) 800,000
Accounts payable 800,000
Foreign purchases denominated in yen:
P800,000 / P.40 = 2,000,000 yen
Problem 19-3
a. No net exposure between November 1 and March 1. Michael, Inc. has hedged its foreign currency
purchase commitment with a forward contract to receive an equal number of foreign currency
units.
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December 31: Firm commitment for merchandise 4,800
Forex gain 4,800
To record increase in fair value of the
Purchase commitment, and resultant
gain or the decrease in the forward rate.
Problem 19-4
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August 1: Accounts payable 480,000
Forex loss (¥ 1,000,000 x P.03) 30,000
Cash (¥ 1,000,000 x P.51) 510,000
To record settlement.
Problem 19-5
Cash 1,240,000
Forward contract receivable 1,240,000
To record collection for forward contract.
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Problem 19-6
Problem 19-7
Contract 1:
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Forward contract payable 160,000
Cash 160,000
To record payment of forward contract.
Contract 2:
Problem 19-8
Cash 123,200
Investment in Siam 123,200
To record dividends from Siam for 20 x 1 (P308,000 x 40%)
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And record interest payable (1,200,000 x 10% x ½ year x P 1.50).
Problem 19-9
Cash 164,000
Forward contract receivable 164,000
To record receipt of Phil. Pesos in settlement of the
forward contract receivable.
Problem 19-10
Current assets:
Forward contract receivable (Siam hedge: in Phil. pesos) P 168,000
Forward contract receivable (Indon hedge: 10,000,000 x P.0077) 77,000
Forward contract receivable (Speculation in Yen: 200,000 x P.670) 134,000
Change in value of firm commitment 1,000
Current liabilities:
Accounts payable (Indon account: 10,000,000 x P.0077) P 77,000
Forward contract payable (Siam hedge: 100,000 Baht x P1.690) 169,000
Forward contract payable (Speculation in Yen: payable in Phil. pesos) 130,000
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2. Forex gain or loss for 2004:
Problem 19-11
a. Entry to record the purchase of the call options on November 30, 2007
c. Entries to record March 1, 2008, expiration of options, the sales of option, and the purchase
of oil.
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March 1, 2008
Cash 30,000
Call options 30,000
Record the sale of the call options.
d. June 1, 2008, entries to record the sale of the oil and other entries:
June 1, 2008
Cash 340,000
Sales 340,000
Record the sale of 10,000 barrels
of oil at P34 per barrel
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