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1. Suppose the direct foreign exchange rates in U.S. dollars are
 

1 British pound	=	$	1.20
1 Canadian dollar	=	$	0.68

  
Required:
a. What are the indirect exchange rates for the British pound and the Canadian dollar? (Round your answers to 4 decimal places.)

b. How many pounds must a British company pay to purchase goods costing $10,000 from a U.S. company? (Do not round intermediate calculations.)

 

c. How many U.S. dollars must be paid for a purchase costing 4,800 Canadian dollars? (Do not round intermediate calculations.)

2.

Part I
Maple Company had the following export and import transactions during 20X5:
 

1. On March 1, Maple sold goods to a Canadian company for €$30,000, receivable on May 30. The spot rates for Canadian dollars were €$1 = $0.65 on March 1 and €$1 = $0.68 on May 30.
2. On July 1, Maple signed a contract to purchase equipment from a Japanese company for ¥500,000. The equipment was manufactured in Japan during August and was delivered to Maple on August 30 with payment due in 60 days on October 29. The spot rates for yen were ¥1 = $0.102 on July 1, ¥1 = $0.104 on August 30, and ¥1 = $0.106 on October 29. The 60-day forward exchange rate on August 30, 20X5, was ¥1 = $0.1055.
3. On November 16, Maple purchased inventory from a London company for £10,000, payable on January 15, 20X6. The spot rates for pounds were £1 = $1.65 on November 16, £1 = $1.63 on December 31, and £1 = $1.64 on January 15, 20X6. The forward rate on December 31, 20X5, for a January 15, 20X6, exchange was £1 = $1.645.

 
Required:
a. Prepare journal entries to record Maple’s import and export transactions during 20X5 and 20X6.

 

 

 

 

 

 

 

b. What amount of foreign currency transaction gain or loss would Maple report on its income statement for 20X5?

Part II
Assume that Maple used forward contracts to manage the foreign currency risks of all of its export and import transactions during 20X5.
 

1. On March 1, 20X5, Maple, anticipating a weaker Canadian dollar on the May 30, 20X5, settlement date, entered into a 90-day forward contract to sell C$30,000 at a forward exchange rate of C$1 = $0.64. The forward contract was not designated as a hedge.
2. On July 1, 20X5, Maple, anticipating a strengthening of the yen on the October 29, 20X5, settlement date, entered into a 120-day forward contract to purchase 500,000 at a forward exchange rate of ¥1 = $0.105. The forward contract was designated as a fair value hedge of a firm commitment.
3. On November 16, 20X5, Maple, anticipating a strengthening of the pound on the January 15, 20X6, settlement date, entered into a 60-day undesignated forward exchange contract to purchase £10,000 at a forward exchange rate of £1 = $1.67.

 
Required:
Prepare journal entries to record Maple’s foreign currency activities during 20X5 and 20X6.

 

 

 

 

 

 

 

b. What amount of foreign currency transaction gain or loss would Maple report on its income statement for 20X5 if Parts I and II of this problem were combined?

 

c. What amount of foreign currency transaction gain or loss would Maple report on its income statement for 20X6 if Parts I and II of this problem were combined?

 

3.
The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles.

Required: Determine the specific citation for accounting for the following:

 

A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes.

4.

The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles.

Required: Determine the specific citation for accounting for the following:

 

allows such a derivative contract of a foreign currency exposure of an unrecognized firm commitment to be designated as a hedge.

 

5.

The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles.

Required: Determine the specific citation for accounting for the following:

     

This Subtopic requires an entity to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements.