CHAPTER 14 MULTIPLE CHOICES

PROB. 14 – 1 (IAS)

As entry will primarily generate and expend cash in one primary economic environment. According
to IAS 21. The Effects of Changes in Foreign Exchange Rates, the correct term for the currency of this
primary economic environment is the

a. Presentation currency
b. Functional currency
c. Reporting currency
d. Foreign currency

PROB. 14 – 2 (IAS)

According to IAS 21. The Effects of Changes in Foreign Exchange Rates at which rate should an
entry’s non-current assets be translated when its functional currency figures are being translated
into different presentation currency?

a. The historical rate

b. The closing rate
c. The average rate
d. The spot exchange rate

PROB. 14 – 3 (IAS)

According to IAS 21. The Effect of Changes in Foreign Exchange Rate, exchange differences should be
recognized either in profit or loss in other comprehensive income.

And the following statement about the recognition of exchange differences in respect of foreign
currency transaction reported in an entry’s functional currency TRUE or FALSE?

1. An exchanged difference on the statement of a monetary item should be recognized in

profit or loss.
2. Any exchange difference on the translation of a monetary item at a rate different to that
used at initial recognition should be recognized in other comprehensive income.

Statement 1 Statement 2

a. False False
b. False True
c. True False
d. True True

PROB. 14 – 4 (AICPA)

On October 1, 2009, Mild Co., purchased machinery from a foreign company with payment due on
April 1, 2010. If Mild’s 2009 operating income included no foreign currency transaction gain or loss,
the transaction could have been
 a. Resulted in extraordinary gain
b. Been denominated in Philippine pesos
c. Cause a foreign currency transaction gain to be reported as a contra account against
machinery.
d. Cause a foreign currency translation gain to be reported in other comprehensive income.

PROB. 14 – 5 (Adapted)

On October 1, 2009, Velee Co. contracted to purchased foreign goods requiring payment in local
current units (LCU) one month after the receipt of the goods at Velee’s factory. Title to the goods
passed on the December 15, 2009. The goods were still in transit on December 32, 2009. Exchange
rates were one peso to 22 LCU’s, 20 LCU’s, and 21 LCU’s on October 1, December 15, and December
31, 2009, respectively. Velee should account for the exchange rate fluctuation in 2009 as

a. As ordinary loss included in net income

b. An ordinary gain included in net income
c. An extraordinary gain
d. An extraordinary loss

PROB. 14 – 6 (AICPA)

On September 1, 2009, Bain Corp. received an order for equipment from a foreign customer for
300,000 local enemy units (LCU) when the peso equivalent was P96, 000. Bain shipped the
equipment on October 15, 2009, and billed the customer for 300,000 LCU when the peso equivalent
was P100, 000. Bain received the customer’s remittance in full on November 16, 2009, and sold the
300,000 LCU for P165, 000. In its income statement for the year ended December 31, 2009, bain
should exchange transaction gain of

a. 0
b. 4, 000
c. 5, 000
d. 9, 000

PROB. 14 – 7 (AICPA)

On September 1, 2009, Cano & Co. sold merchandise to a foreign firm for 250,000 francs. Term of
the sale require payment in francs on February 1, 2010. On September 1, 2009, the spot exchange
rate was P1.20 per franc. At December 31, 2009, Cano’s year-ended the spot rate was P1.19, but the
rate increased to P1.22 by February 1, 2010, when payment was received. How much should Cano
report as foreign exchange transaction gain or loss in its 2010 income statement?

a. 0
b. 2, 500 loss
c. 5, 000 gain
d. 7, 500 gain

PROB. 14 – 8 (AICPA)
Lindy Corp. bought inventory items from a foreign supplier in Japan on November 15, 2009 for
100,000 yen, when the spot rate was P0.4295. At Lindy’s December 31, 2009, year end, the spot rate
was P0.4245. On January 15, 2010, Lindy bought 100,000 yen at the spot rate of P0.4345 and paid
the invoice.

How much should Lindy report in its income statements of 2009 and 2010 as foreign exchange
transaction gain or loss?

2009 2010

a. 500 ( 1, 000)
b. 0 ( 500 )
c. ( 500 ) 0
d. ( 1, 000 ) 500

PROB. 14 – 9 (RPCPA)

Hizon Holdings, Inc. is a percent company of a group of companies, but also does in own trading. It
bought a fixed assets for 36,000 dollars on November 1, 2009 when the exchange rate was $1.00 –
P23.00. At December 31, 2009, the company’s year-ended, the supplier of the fixed assets has not
been paid and the exchange rate at the time was $1.00 – P25.00. The company has not taken out
forward exchange contract for his payment as a hedge against adverse exchange rate movements.
On the balance sheet of Hizon Holdings, Inc. what will be the values for the fixed asset and the
creditor whos was unpaid?

Fixed asset Creditor

a. 900, 000 900, 000

b. 900, 000 828, 000
c. 828, 000 828, 000
d. 828, 000 900, 000

PROB. 10 – 10 (RPCPA)

Filcraft Corp. sold metal crafts to a US firm for $70,000and pertinent information on exchange
conversion rates related to this transaction were as follows:

Conversion Rate

(Peso to US dollars)

Nov. 4 Receipt of order P27.40

Nov. 22 Date of shipment 27.50

Dec. 31 Balance sheet date 27.60

Jan. 6 Date of collection 27.00

The sale would be appropriately recorded at:

a. 1,890,000
 b. 1,918,000
c. 1,925,000
d. 1,932,000

PROB 14 – 11 (AICPA)

On November 15, 2009, Celt Inc., a Philippine company located in Baguio City, ordered merchandise
FOB shipping point from a German company for 200,000 marks. The merchandise was shipped and
invoiced to Celt on December 10, 2009. Celt paid the invoice on January 1, 2010. The spot rates for
the marks on the respective dates are as follows.

November 15, 2009 P22.4955

December 10, 2009 22.4875

December 31, 2009 22.4675

January 10,2010 22.4475

In Celt’s December 32, 2009 income statement, the foreign exchange gain is

a. 9,000
b. 8,000
c. 4,000
d. 1,000

PROB. 10 – 12 (AICPA)

On April 8, 2009, Day Corp. purchased merchandise from an unaffiliated foreign company for 10,000
units of foreign company’s local currency. Day paid the bill in full on March 1, 2009 when the spot
rate was P0.45. The spot rate was P0.60 on April 8, 2009 and was P0.55 on December 32, 2009. For
the year ended December 31, 2009, Day should report a transaction gain of.

a. 1,500
b. 1,000
c. 500
d. 0

PROB. 14 – 13 (RPCPA)

Phil-Export Corp., sold to American customer merchandise worth 10,000 US dollars. As of Phil-
export’s balance sheet cut-off date on June 30, 2009, the exchange rate was P26.00. On August 15,
2009, payment was received in the form of a bank transfer whereby Phil-Export’s account was
credited the amount of P265, 400 before any charges. At the time of acceptance of the merchandise
in San Francisco, the exchange rate was P26.75. The appropriate exchange rate for the recognition of
the sale was.

a. 26.54
b. 26.60
c. 26.63
d. 26.75

PROB. 14 – 14 (RPCPA)

Local Corp. imported a heavy machine from the US for 50,000 US dollars on October 10, 2009. A
letter of credits was opened with a Makati branch based on the commercial invoice for US$50,000,
on which Local Corp. made a 100% deposit cover based on the exchange rate of 51.00 to P27.50.
Shipment of the heavy machine was effected on December 30, 2009, at which time the exports
collected the proceeds of the letter of credit when the prevailing exchange rate was $1.00 to P28.00.
From the exchange rate fluctuations, Local Corp. realized.

a. No gain, no loss
b. A P5,000 gain
c. A P25,000 gain
d. A P25,000 loss

PROB. 14 – 15 (IAS)

The White Co. has the Philippine pesos as sits Functional currency. On October 16, 2009, White
ordered some inventory from a foreign supplier and agreed a purchase price of 160,000 local
currency units (LCU). The inventory was received on November 15, 2009.

At December 31, 2009, the inventory remained on hand and trade payable balance for the inventory
purchase remained outstanding. The supplier was paid on January 27, 2010 and the inventory was
sold on January 31, 2010

The following information about exchange rates is available:

October 16, 2009 P1.00 – 2.60 LCU

November 15, 2009 P1.00 – 2.50 LCU

December 31, 2009 P1.00 – 2.40 LCU

January 27, 2009 P1.00 – 2.25 LCU

According to IAS 21. The Effects of Changes in Foreign Exchange at what amount should the trade
payable balance due to the supplier is presented in the statement of financial position at December
31, 2009?

a. 61,538
b. 64,000
c. 66,667
d. 71,111

PROB. 14 - 16 ( RPCPA)

If one Taiwanese dollar can be exchanged for P1.025, the fraction for computing indirect quotation
of exchange rate expressed in Taiwanese currency would be:

a. 0.975/1.00
b. 1.00/0.0975
c. 1.00/1.025
d. 1.025/1.00

PROB. 14 – 17 (RPCPA)

On June 15, 2010, Boni Co. purchased merchandise worth 100,000 Swiss francs from its supplier in
Switzerland payable within 30 days under and open account arrangement Boni issued a 30-day, 6%
note payable in Swiss francs. On July 15, 2010, Boni paid the note in full.

The following information in spot notes (P/SW) is provided.

 Buying Selling

June 15, 2010 P 24.03 P 24.15

July 15, 2010 24.10 24.22

What is Boni’s foreign exchange gain (loss) for the transaction?

a. (5,040)
b. 12,075
c. (7,035)
d. (19,110)

PROB. 14 – 18 (AICPA)

Ball Corp. had the following foreign currency transaction during 2009.

 Merchandise was purchased from a foreign supplier on January 20, 2009, for the Philippine
peso equivalent of P90, 000. The invoice was paid on March 20, 2009, at the Philippine peso
equivalent of P96, 000.
 On July 1, 2009, Ball barrowed the Philippine peso equivalent of P500,00 evidenced by a
note that was payable in the lender’s local currency on July 1, 2010. On December 31, 2009,
the Philippine peso equivalents of the principal amount and accrued interest were P520,000
and P26,000, respectively. Interest on the note is 10% per annum.

In Ball’s 2009 income statement, what amount should be included as foreign exchange transaction
loss?

a. 0
b. 6,000
c. 21,000
d. 27,000

PROB. 14 – 19 (Adapted)

On October 1, 2009, a local importer contracted to purchase foreign goods requiring payment of
100,000 German marks one month after their receipt at the local importer’s business place. Title to
the goods passed on the date of shipment on December 1, 2009. On December 31, 2009, the goods
were still in transit. The following exchange rates were made available:

October 1, 2009 P 22.00

December 1, 2009 20.00

December 31, 2009 26.00

How should the exchange fluctuation in 2009 be accounted by this local importer?

Transaction Transaction

Gain (loss) adjustment

a. (400,000) 0
b. 600,000 200,000
c. (600,000) 200,000
d. (600,000) 0
PROB. 14 – 20 (AICPA)

On November 30, 2008 Tyrola Publishing Co. located in Manila, executed a contract with Ernest
Blyton, as author from Canada, providing for payment of 10% royalties on Canadian sales of Blyton’s
book. Payments are to be made in Canadian dollars each January 10 for the previous year’s sales.
Canadian sales of the book for the year ended December 31, 2009 totalled $50,000 Canadian dollars.
Tyrola paid Blyton his 2006 royalties on January 10, 2010. Trola’s 2009 financial statements were
issued on February 1, 2010. Spot rates for Canadian dollars were as follows:

November 30, 2008 P27.87

January 1, 2009 27.88

December 31, 2009 27.89

January 10, 2010 27.90

How much should Tyrola accrued for royalties payable at December 31, 2009?

a. 139,350
b. 139,500
c. 139,450
d. 139,500

PROB. 14 – 21 (AICPA)

Hunt Co. purchased merchandise for 300,000 francs from a vender in Belgium on November 30,
2009. Payment in Belgium francs was due on January 30, 2010. The exchange note to purchase one
franc were as follows:

Nov. 30, 2009 Dec. 31, 2009

Spot rate P1.65 P1.62

30-day rate 1.64 1.59

60-day rate 1.63 1.56

In its December 31, 2009, income statement, what amount should Hunt report as foreign exchange
gain?

a. 12,000
b. 9,000
c. 6,000
d. 0

PROB. 14 – 22 (AICPA)

Fay Corp. had a realized foreign exchange loss of P15,000 for the year ended December 31, 2009 and
must also determine whether the following items will require year-end adjustment:

 Fay had P8,000 loss resultingfrom the translation of the account of its wholly owned foreign
subsidiary for the year ended December 31, 2009.
 Fay had an account payable to an unrelated foreign supplier payable in the supplier’s local
currency. The Philippine peso equivalent of the payable was P64, 000 on the October 31,
 209 invoice date, and it was P60,000 on December 31, 2009. The invoice is payable on
January 30, 2010:

In Fay’s 2009 consolidated income statement, what amount should be included as foreign exchange
loss?

a. 11,000
b. 15,000
c. 19,000
d. 23,000

PROB 14 – 23 (AICPA)

In preparing consolidated financial statements of a Philippine patent company with a foreign

subsidiary, the foreign subsidiary’s functional currency is the currency.

a. In which subsidiary maintains its accounting records

b. Of the country in which thesubsidiary is located
c. Of the country in which the parent is located
d. Of the environment in which the subsidiary primarily generates and expends cash.

PROB. 14 – 24 (AICPA)

A foreign subsidiary’s functional currency is its local currency, which has not experienced significant
inflation. The weighted average exchange rate for the current year is this appropriate exchange rate
for translating.

Wages expenses Sales to customers

a. Yes No
b. Yes Yes
c. No Yes
d. No No

PROB. 14 - 25 (Adapted)

A wholly owned subsidiary of Ward Inc. has certain expense accounts for the year ended December
31, 2009 started in local currency units (LCU) as follows:

LCU

Depreciation of equipment 120,000

Provision for doubtful accounts 80,000

Rent 200,000

The exchange rates at various dates are as follows:

Peso equivalent of 1 LCU

December 31, 2009 P 0.40

Average for year ended December 31, 2009 0.44

January 1, 2003 (date of organization) 0.50

Using the only one method of translating the financial statements of foreign operations recognized
by PAS 21, what total peso amount should be included in Word’s 2009 consolidated income
statement to reflect these expenses?

a. 160,000
b. 168,000
c. 176,000
d. 183,200

PROB. 14 – 26 (AICPA)

A wholly owned foreign subsidiary of Union Co. has certain expense accounts for the year ended
December 31, 2009 stated in local currency units (LCU) as follows:

LCU

Amortization of patent (related patent acquired on January 1, 2007) 40,000

Provision for doubtful accounts 60,000

Rent 100,000

The exchange rates at various dates are as follows:

Peso equivalent of 1 LCU

December 31, 2009 P 0.20

Average for year ended December 31, 2009 0.22

January 1, 2007 0.25

Using the generally accepted method of translating the financial statements of foreign operation,
what total peso amount should be included in Union’s income statements to reflect the above
expenses for the year ended December 31, 2009?

a. 40,000
b. 42,000
c. 44,000
d. 45,000

PROB. 14 – 27 (AICPA)

Certain balance sheet accounts of a foreign subsidiary of Rowan Inc. at December 31, 2009, have
been translated into Philippine pesos as follows:

Translated at

Current rate Historical rate

Note receivable, long term P240,000 P200,000

Prepaid rent 85,000 80,000

Patent 150,000 170,000

P475,000 P450,000
What total amount should be included is Rowan’s December 31, 2009, consolidated balance sheet
for the above accounts using the translation method recognized under PAS 21?

a. 450,000
b. 455,000
c. 475,000
d. 495,000

PROB. 14 – 28 (Adapted)

Manila Corp. a wholly-owned subsidiary of Asia, Inc. in California, USA, has certain expenses
accounts for the year ended December 31, 2009, stated in US dollars as follows:

US dollars

Selling expenses 360,000

Salaries and wages 600,000

Depreciation expense 240,000

The exchange rates at various dates as follows:

Peso equivalent 1 US dollars

December 31, 2009 P 40,000

Average for year ended 12/31/2009 35,000

January 1, 2009 25,000

Assume that the charges to the expense accounts occurred approximately evenl during the year.
What total peso amount should be included in Asia’s 2009 consolidated income statement to reflect
these expenses?

a. 30,000,000
b. 39,000,000
c. 42,000,000
d. 48,000,000

PROB. 14 – 29 (Adapted)

Paris Co. a wholly-owned subsidiary of Filipino Corp. is located in France. In 2009, Filipino Corp.
borrowed French francs as a partial hedge of its investment in Paris Co. on December 31, 2009, in
the preparation of consolidated financial statements. Filipino Corp’s translation loss on its
investment in the subsidiary amounted to P500,000, while its exchange gain on the borrowing
amounted to P300,000.

What amount of gain or loss should Filipino Corp. report in consolidated income statement and
balance sheet?

Income statement Balance sheet

a. (500,000) 300,000
b. 300,000 (500,000)
c. 0 (200,000)
 d. (200,000) 0

PROB. 14 – 30 (IAS)

The Will Co. acquired a foreign on August 15, 2009. Goodwill arising on the acquisition was P175,
000. Consolidated financial statements are prepared at the year end of December 31, 2009 requiring
the translation of all foreign operations results into presentation currency of Philippine pesos.

The following rates of exchange have been identified:

August 15, 2009 1.321 LCU – P1.00

December 31, 2009 1.298 LCU – P1.00

Average rate: year ended December 31, 2009 1.302 LCU – P1.00

Average rate: from August 15 to December 31 1.292 LCU – P 1.00

According to IAS 21, The Effects of Changes in Foreign Exchange Rates, at what amount should the
goodwill be measured in the consolidated statement of financial position?

a. 134,409
b. 135,449
c. 134,823
d. 312,475

PROB. 14 – 31 (IAS)

On September 1, 2009 Nepture Co. acquires a foreign subsidiary. The fair value of the subsidiary’s
assets was the same as their carrying amount exept for land where the fair value was P50,000
greater than carrying amount. This fair value adjustment has not been recognized as the separate
financial statements of the subsidiary. Consolidated financial statements are prepared at the end of
the year December 31, 2009 requiring the translation of all foreign operation result into
presentation currency of Philippine pesos. The following exchange rates have been determined.

September 1, 2009 P 1.62

December 31, 2009 P 1.56

Average rate for the year ended December 31, 2009 P 1.60

Average rate from September 1, 2008 to December 31, 2009 P 1.58

According to IAS 21, what fair value adjustment is required to the carrying amount of land in the
consolidated balance sheet?

a. 30,864
b. 32,051
c. 31,250
d. 31,646

PROB. 14 – 32 (IFRS)

According to IAS 21. The Effects of Changes in Foreign Exchange Rates exchange differences should
be recognized either in profit or loss or in other comprehensive income. Are the following
statements about the recognition of exchange differences in respect of foreign currency transactions
reported in an entity’s functional currency TRUE or FALSE

Statement I. An exchange differences on the settlement of a monetary item should be

recognized in profit or loss.

Statement II. Any exchange difference on the translation of a monetary item at a rate different to
that used at initial recognition should be recognized in other comprehensive
income.

Statement I Statement II

a. False False
b. False True
c. True False
d. True True