LESSON 5

EVALUATION

1. Jeep Corporation imported a machine for US $ 50,000 from the United States on
January 10, 2022. A corresponding letter of credit (LC) was opened with Metro
Bank to cover importation. Shipment was effected on March 24, 2022 at which time
the exporter collected the proceeds of the LC when the exchange rate was P
58.000 to US$ 1. On April 1, 2022 Jeep paid the LC when the exchange rate was
P 59.45.

What is the forex gain or loss to be recognized by Jeep from the fluctuations of the
exchange rate:

2. On January 1, 2022, the Makati Corporation established a branch in Hongkong.

On February 15, 2022, the branch purchased inventory for HK$200,000. On
December 31, 2022, HK $35,000 of the inventory purchased on February 15, 2022
made up the entire inventory. The exchange rates were as follows:
January 1 to June 30, 2022 HK $0.139= P 1
December 31, 2022 HK$0.132=P 1

The December 31, 2022 inventory balance for Makati’s branch should be
translated into Philippines pesos in the amount of:

3. The subsidiary in Japan of Manila Company, a Philippine enterprise has plant

assets with a cost of 4,000,000 yen on December 31, 2022. Of this amount, plant
assets with a cost of 2,400,000 yen were acquired in 2018 when the exchange rate
was 1 yen= P 0.635; plant assets with a cost of 1,600,000 yen were acquired in
2021 when the exchange rate was 1 yen= P 0.510, and the weighted average rate
for 2021 was 1 yen= P 0.522. The Japanese subsidiary depreciates plant assets
by the straight-line method over a 10-year economic life with no residual value.

What is the 2022 depreciation expense for the Japanese subsidiary in Philippine
peso for the translated statement of comprehensive income?

4. On July 1, 2022, Manila Company purchased raw materials from a Japanese

supplier for 3,000,000 yen and opens the corresponding Letter of Credit (LC) with
City Bank to cover its importation. The company’s year-end is December 31. The
spot rate issued by the bank for Japanese yen at various dates is as follows:
July 1, 2022 (date of arrival of goods) P 0.60
December 31, 2022 P 0.65
July 1, 2023 (date of settlement) P 0.62
 In its statement of comprehensive income for 2023, what amount should Manila
Company include as a foreign exchange gain (loss)?

5. If one (1) Euro can be exchanged for P 75.50 Philippine peso, the indirect
exchange rate of Euro per Philippine peso is:

A subsidiary of Jolly, Inc. located in a foreign country whose functional currency is the
foreign currency (which is not the currency of a hyperinflationary economy). The
subsidiary acquires inventory on credit on November 1, 2021, for 120,000 foreign
currencies (FC) that is sold on January 17, 2022 for 140,000 foreign currencies (FC). The
subsidiary pays for the inventory on January 31, 2022. Currency exchange rates for 1
foreign currency (FC) are as follows:

November 1, 2021 P 0.16 = 1 FC

December 31, 2021 0.18 = 1
January 17, 2022 0.20 = 1
January 31, 2022 0.22 = 1
Average for 2022 0.24 = 1

6. What amount does Jolly’s consolidated balance sheet report for this inventory at
December 31, 2021?

7. What amount does Jolly’s consolidated income statement report for cost of goods
sold for the year ending December 31, 2022?

8. What amount does Jolly’s consolidated income statement report for cost of goods
sold for the year ending December 31, 2022?

Jolly Company is a Thailand subsidiary of a Philippine Company. Jolly’s functional

currency is LCU. The following exchange rates were in effect during 2021:

January 1 P 1 = .615 baht

June 30 1 = .625 baht
December 31 1 = .635 baht
Weighted average rate for the year 1 = .627 baht

9. Jolly Company sales of 2,000,000 during 2021. What amount would have been
included for this subsidiary in calculating consolidated sales?

10. Jolly had accounts receivable of 280,000 on December 31, 202`. What amount
would have been included for this subsidiary in calculating consolidated accounts
receivable?