PEPITO, RIEZEL V.

BSA 4A

QUIZ 3- PROBLEMS & SUTIONS

SOLUTION
PROBLEMS
1.
The TAGALOG CORPORATION purchased merchandise from a foreign exporter on
November 15, 2014 for FC 100,000, payable in that currency on January 15, 2015.
TAGALOG predicts the Philippine peso might probably weaken against the foreign
currency over the 60-day period and entered into a hedge of the exposed foreign
currency amount against the risk of exchange losses. The hedging relationship was
designed in a way that it would be fully effective thru the entire hedge period, and
selected a forward contract for that purpose. 
How much amount was Due from the Broker as at December 31, 2014?
*

P43,000
P43,450
P43,250
P42,450
 
2.
The TAGALOG CORPORATION purchased merchandise from a foreign exporter on
November 15, 2014 for FC 100,000, payable in that currency on January 15, 2015.
TAGALOG predicts the Philippine peso might probably weaken against the foreign
currency over the 60-day period and entered into a hedge of the exposed foreign
currency amount against the risk of exchange losses. The hedging relationship was
designed in a way that it would be fully effective thru the entire hedge period, and
selected a forward contract for that purpose. 

How much transaction gain or (loss) should TAGALOG CORPORATION report when
the Accounts payable (in FC) was settled in 2015?
*

P(1,000)
P (500)
P1,000
P500
3.
The TAGALOG CORPORATION purchased merchandise from a foreign exporter on
November 15, 2014 for FC 100,000, payable in that currency on January 15, 2015.
TAGALOG predicts the Philippine peso might probably weaken against the foreign
currency over the 60-day period and entered into a hedge of the exposed foreign
currency amount against the risk of exchange losses. The hedging relationship was
designed in a way that it would be fully effective thru the entire hedge period, and
selected a forward contract for that purpose. 

How much should TAGALOG CORPORATION report as transaction gain or (loss)

on its Accounts payable (in FC) at December 31, 2014 (its current year-end)?
*

P(300)
P500
P(250)
P250

4.
The TAGALOG CORPORATION purchased merchandise from a foreign exporter on
November 15, 2014 for FC 100,000, payable in that currency on January 15, 2015.
TAGALOG predicts the Philippine peso might probably weaken against the foreign
currency over the 60-day period and entered into a hedge of the exposed foreign
currency amount against the risk of exchange losses. The hedging relationship was
designed in a way that it would be fully effective thru the entire hedge period, and
selected a forward contract for that purpose. 

How much was the transaction gain or (loss) recognized on the forward contract at
December 31, 2014?
*

P250
P(300)
P500
P(250)

5.

The TAGALOG CORPORATION purchased merchandise from a foreign exporter on

November 15, 2014 for FC 100,000, payable in that currency on January 15, 2015.
TAGALOG predicts the Philippine peso might probably weaken against the foreign
currency over the 60-day period and entered into a hedge of the exposed foreign
currency amount against the risk of exchange losses. The hedging relationship was
designed in a way that it would be fully effective thru the entire hedge period, and
selected a forward contract for that purpose. 
How much was the over-all transaction gain or (loss) over the hedging relationship.
*

P(300)
P500
P250
 
P(250)
6.

On November 2, 2015, P Corp. entered into a firm commitment with Japanese firm to
acquire equipment, delivery and passage of title on March 31, 2016, at a price of
4,375 yen.  On the same date, to hedge against unfavorable changes in the
exchange rate of the yen, P Corp. entered into a 150-day forward contract with BPI
for 4,357 yen.  

How much is the amount debited to the equipment account on the date of
*

P161,875; 11/2/2015
P175,000; 3/31/2016
P185,000; 11/2/2015
P153,125; 3/31/2016
7.

Problem Solving:
What is the value of the Forward Contract Receivable-FCon June 30, 2016?

Present value factor of 0.999907

*

P74, 693
P75, 000
P74, 993
 
P75, 693

8.

Problem Solving:
What is the value of the Forward Contract Receivable-FC on June 1, 2016? 
*

P74, 000
 
P68, 000
P73, 000
P70, 000
9.
On September 1, 2018, Brady Corporation entered into a foreign exchange contract
for speculative purposes by purchasing 50,000 foreign currencies for delivery in 60
days. In its September 30, 2018 income statement, what amount should Brady report
as foreign exchange transaction gain (loss) 

P(49,500)
 
P7,500
P(49,000)
P55,500

10.

How will the Philippine Company report the fair value of the forward contract on the
balance sheet at December 31, 2015? 
*

a liability of P39, 212

an asset of P32, 912
a liability of P50, 000
an asset of P49, 015
 
11.
On December 1, 2015, POSITIVE Corporation sold furniture to Hatton Company for
£18,000 on March 1, 2016 to be settled in British Pound.  The following exchange
rates applied:  POSITIVE Corporation engaged in a forward contract with ING to sell
£18,000 in 90 days. How much is the balance of the Forward Contract Payable on
December 31, 2015?
*

P1,350,000
P1,314,000
P1,404,000
P1,332,000

12.
On November 1, 2021, HIJ entered into a forward contract to buy $7,000 from a LMN
bank to speculate on the changes in the value of the US Dollar. It will be delivered on
January 31, 2022. Compute the fair value of the derivative instrument to LMN on
December 31, 2021 
*

14,000 positive
14,000 negative
 
7,000 positive
7,000 negative

13.
Which of the following correctly describes the manner in which PAMPANGA will
report the forward contract on its December 31, 2013 balance sheet? 
*
As an asset in the amount of P3,921.20
As a liability in the amount of P4,901.50
 
As a liability in the amount of P6,862.10
As an asset in the amount of P1,960.60

14.

On December 1, 2015, a Philippine firm purchased a speculative hedge to buy

30,000 foreign currency when the spot rate was P1.10 and a 60 day forward rate
was P1.12. The spot rate at December 31 (the company's year-end was P1.25 and a
30-day forward rate was P1.13. When the speculative hedge was exercised on
January 31, 2016 the spot rate was P1.11 and a 30 day forward rate, P1.12.The
journal entry to record this hedge would include a debit to Contract Receivable in the
amount of
*

0
P600
P33,600
P33,000

15.

On November 1, 2021, NOP Company sold merchandise to a foreign customer. The

account will be settled on March 1, 2022 with the receipt of 200,000 foreign currency
units. On November 1, NOP also entered into a forward contract with a bank to
mitigate the risk on the exposed asset. The contracted forward rate is P0.80 per unit
of foreign currency. NOP has a December 31 fiscal year-end. Spot rates on relevant
dates were shown in the picture:
Using the gross position approach, compute the amount of the Receivable from the
bank account on December 31, 2021 and the gain or loss on the hedged item in
2021?
*

Receivable account: 162,000; Gain/Loss recorded: 4,000. Gain

Receivable account:162,000; Gain/Loss recorded: 4,000 loss
Receivable account: 160,000; Gain/Loss recorded: 4,000 loss
Receivable account: 168,000; Gain/Loss recorded: 2,000 gain

16.

On November 2, 2016, SUITIC CORPORATION, a Philippine company, entered into

a 90-day contract to sell FC 220, 000 in a transaction accounted for as speculation.
The spot rate for the FC on November 2 was P0.74 and the current quotation for 90-
day forwards was P0.68. On December 31, 2016, the spot rate was P0.78 and the
quotation for 30-day forwards was P0.65, SUITIC's entry to record the transaction on
November 2, 2016 included a
*
debit to Contract Receivable denominated in FC for P162, 800
credit to Contract Payable denominated in FC for P149 ,600
debit to Contract Receivable denominated in FC for P149, 600
credit to Contract Payable denominated in FC for P154, 000.

17.

What will be the forward rate?

*

1FC = .570 Phi peso

1FC = .700 Phi peso
1FC = .750 Phi peso
1FC = .744 Phi peso

18.

On August 1, 2018, a Philippine firm received a machine costing 200,000 yen from a
Japanese firm to be paid for on October 1, 2018. Also on August 1, 2018, the
Philippine firm entered into a contract to purchase200,000 yens to be delivered on
October 1, 2018, at a forward rate of 1 Yen = P0.35. Which of the following
statements is incorrect concerning the accounting treatment of these transactions? 
*

The value of the accounts payable before the payment but before recognizing any exchange
differential was P68,000 or immediately just before the payment and after recognizing
exchange differential was P64,000.
The machine’s final recorded value was P70,000.
An exchange gain on the accounts payable of P4,000 was recognized on October 1, 2018.
The beginning balance in the accounts payable was P68,000

19.

On November 1, 2021, HIJ entered into a forward contract to buy $7,000 from a LMN
bank to speculate on the changes in the value of the US Dollar. It will be delivered on
January 31, 2022. Under the gross position approach, compute the amount credited
by HIJ to the foreign currency denominated payable account at the inception date

294,000
301,000
280,000 
0