Posted: May 2nd, 2016

which of the following statements is true?

Settlement date 120.0 yen = 1 US dollar

As a result of this transaction, the U.S. company has a foreign currency transaction gain (loss) in 2008 and 2009 of (rounded):

2008 2009
a. $(1,200) $2,600
b. $1,400 $1,200
c. $1,200 $(2,600)
d. $(1,200) $1,400

3. The transaction gain or loss to be recognized over the term of a forward exchange contract entered into to speculate in a foreign currency within a fiscal year is measured by the difference between the
a. spot rate at inception of the contract and forward rate at inception of the contract.
b. spot rate at inception of the contract and spot rate at settlement of the contract.
c. forward rate at inception of the contract and spot rate at settlement of the contract.
d. forward rate at inception of the contract and forward rate at settlement of the contract.

4. Bowman Company reported translation adjustments in its stockholders’ equity section of $2,000,000. These adjustments were added to the other items disclosed in Bowman’s stockholders’ equity. Bowman’s translation adjustments resulted from its 80% interest in the capital stock of a Danish subsidiary. Based upon the facts presented, which of the following statements is true?
a. The credits in dollars on the Danish trial balance exceeded the debits in dollars by $2,000,000.
b. The debits in dollars on the Danish trial balance exceeded the credits in dollars by $2,000,000.
c. The debits in dollars on the Danish trial balance exceeded the credits in dollars by $2,500,000.
d. The credits in dollars on the Danish trial balance exceeded the debits in dollars by $2,500,000.

5. On November 1, Year One, the Haynie Company signs a contract to receive one million Japanese yen on February 1, Year Two, for $10,000 based on the three-month forward exchange rate at that time of $1 for 100 Japanese yen (1,000,000 x 1/100 or $10,000). This contract is a derivative because its value is derived from the future value of the Japanese yen in relation to the US dollar. On December 31, Year One, the Haynie Company is producing financial statements. How is this forward exchange contract reported?
a. It is shown as an asset or a liability at its fair value.
b. It is shown only as an asset at its fair value.
c. It is shown only as a liability at its fair value.
d. It is only disclosed in the notes to the financial statements because it is a future transaction.