Forex Transactions

FOREX TRANSACTIONS
1. On September 1, year 1, Baler Corp. received an order for equipment from a foreign customer
for 300,000 local currency units (LCU) when the Philippine peso equivalent was P96,000. Baler
shipped the equipment on October 15, year 1, and billed the customer for 300,000 LCU when the
Philippine peso equivalent was P100,000. Baler received the customer’s remittance in full on
November 16, year 1, and sold the 300,000 LCU for P105,000. In its income statement for the
year ended December 31, year 1, Baler should report as part of net income a foreign exchange
transaction gain of
a. P0
b. P4,000
c. P5,000
d. P9,000
2. On September 1, year 1, Vigan, a Philippine corporation, sold merchandise to a foreign firm

for 250,000 Japanese yen. Terms of the sale require payment in yen on February 1, year 2. On
September 1, year 1, the spot exchange rate was P.20 per yen. At December 31, year 1, Vigan
end, the spot rate was P.19, but the rate increased to P.22 by February 1, year 2, when payment
was received. How much should Vigan report as foreign exchange transaction gain or loss as part
of year 2 income?
a. P0.
b. P2,500 loss.
c. P5,000 gain.
d. P7,500 gain.
3. Mandaue, a Philippine corporation, bought inventory items from a supplier in Turkey on

November 5, year 1, for 100,000 Turkish lira, when the spot rate was P.4295. At Mandaue’s
December
31, year 1 year-end, the spot rate was P.4245. On January 15, year 2, Mandaue bought 100,000
pesos at the spot rate of P.4345 and paid the invoice. How much should Mandaue report as part
of net income for year 1 and year 2 as foreign exchange transaction gain or loss?
Year 1 Year 2
a. P 500 P(1,000)
b. P0 P (500)
c. P (500) P0
d. P(1,000) P 500
4. Guimaras Co. purchased merchandise for TWD300,000 from a vendor in Taiwan on
November 30, year 1. Payment in Taiwan dollar was due on January 30, year 2. The exchange
rates to purchase one TWD were as follows:
November 30, December 31,
Year 1 Year 1
Spot rate P1.65 P1.62
30-day rate 1.64 1.59
60-day rate 1.63 1.56
In its December 31, year 1, income statement, what amount should Guimaras report as foreign
exchange transaction gain as part of net income?
a. P12,000 c. P 6,000
b. P 9,000 d. P0
5. Lucena Corp. had the following foreign currency transactions during year 1:
 Merchandise was purchased from a foreign supplier on January 20, year 1, for the
Philippine peso equivalent of P90,000. The invoice was paid on March 20, year 1, at the
Philippine peso equivalent of P96,000.
 On July 1, year 1, Lucena borrowed the Philippine peso equivalent of P500,000
evidenced by a note that was payable in the lender’s local currency on July 1, year 3. On
December 31, year 1, 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 Lucena’s year 1 income statement, what amount should be included as foreign exchange
transaction loss as part of net income?
a. P0 c. P21,000
b. P 6,000 d. P27,000
6. On November 30, year 1, Tyrola Publishing Company, located in Baguio, executed a contract
with Ernest Blyton, an author from Canada, providing for payment of 10% royalties on Canadian
sales of Blyton’s book. Payment is 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, year 2, totaled
P50,000 Canadian. Tyrola paid Blyton his year 2 royalties on January 10, year 3. Tyrola’s year 2
financial statements were issued on February 1, year 3. Spot rates for Canadian dollars were as
follows:
November 30, year 1 P.87 December 31, year 2 P.89

January 1, year 2 P.88 January 10, year 3 P.90
How much should Tyrola accrue for royalties payable at December 31, year 2?
a. P4,350
b. P4,425
c. P4,450
d. P4,500
7. Capiz Co. records its transactions in Philippine pesos. A sale of goods resulted in a receivable
denominated in Japanese yen, and a purchase of goods resulted in a payable denominated in
euros. Capiz recorded a foreign exchange transaction gain on collection of the receivable and an
exchange transaction loss on settlement of the payable. The exchange rates are expressed as so
many units of foreign currency to one peso. Did the number of foreign currency units
exchangeable for a peso increase or decrease between the contract and settlement dates?
Yen Euros
Exchangeable Exchangeable
for P1 for P1
a. Increase Increase
b. Decrease Decrease
c. Decrease Increase
d. Increase Decrease
8. On October 1, year 1, Mild Co., a Philippine company, purchased machinery from Grund, a
German company, with payment due on April 1, year 2. If Mild’s year 1 operating income
included no foreign exchange transaction gain or loss, then the transaction could have
a. Resulted in an extraordinary gain.
b. Been denominated in Philippine pesos.
c. Caused a foreign currency gain to be reported as a contra account against machinery.
d. Caused a foreign currency translation gain to be reported as other comprehensive income.
9. On October 1, year 1, Velec Co., a Philippine company, contracted to purchase foreign goods
requiring payment in Qatari riyals, one month after their receipt at Velec’s factory. Title to the
goods passed on December 15, year 1. The goods were still in transit on December 31, year 1.
Exchange rates were one dollar to twentytwo riyals, twenty riyals, and twenty-one riyals on
October 1, December 15, and December 31, year 1, respectively. Velec should account for the
exchange rate fluctuation in year 1 as
a. A loss included in net income before extraordinary items.
b. A gain included in net income before extraordinary items.
c. An extraordinary gain.
d. An extraordinary loss.

Forex Transactions

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FOREX TRANSACTIONS

2. On September 1, year 1, Vigan, a Philippine corporation, sold merchandise to a foreign firm

3. Mandaue, a Philippine corporation, bought inventory items from a supplier in Turkey on

November 30, year 1 P.87 December 31, year 2 P.89

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