Module Assessment Answers - Effects of Changes in Foreign Currency Exchange Rates

OnSeptember 22, Year 2, Y Corporation purchased merchandise from an unaffiliated foreign
company for 10,000 units of the foreign company’s local currency. On that date, the spot rate
was P55. Y paid the bill in full on March 20, Year 3, when the spot rate was P55.50. The spot
rate was P56 on December 31, Year 2. What amount should Yumi report as a foreign currency
transaction loss in its income statement for the year ended December 31, Year 2?
P10,000
CERTS Company, a Philippine Corporation, bought inventory from a supplier in Japan on

November 2, Year 1 for 50,000 yen, when the spot rate was P 0.4245. On December 31, Year 2,
the spot rate was P 0.4295. On January 15, 2012, CERTS bought 50,000 yen at a spot rate of P
0.4250 and paid the invoice. How much should CERTS report in its income statements for (1)
Year 2 and (2) 2012 as foreign exchange gain or (loss)
(P250); P225
On July 1, Year 2, ACCENTURE Company lent P308,000 to a US supplier, evidenced by an

interest-bearing-note due on July 1, Year 3. The note is equivalent to $8,000 on the loan date.
The note principal was appropriately included at P328,000 in ACCENTURE’s December 31, Year
2 balance sheet. The note was repaid to ACCENTURE on July 1, Year 3. Due date when the
exchange rate was P39 to $1. In its income statement for the year Ended December 31, Year 3
what amount should ACCENTURE company include as a foreign currency transaction gain or
loss?
P16,000 loss
Matthew, a money changer speculate in foreign currency as his business. On October 1,

Year 2, Matthew bought a 180-day forward contract to purchase 5, 000 FC at a forward
rate of FC1= P56.50 when the spot rate was P56.00. Other exchange rates were as
follows:

Forward Rate for March 31, Year 3
Spot Rate
Dec. 31, Year 2 P56.30 P56.60
Mar. 31, Year 3 56.32
The forex gain (loss) recognized by Matthew from this forward contract is:
P(900)
A Pampanga food processor forecasts purchasing 300,000 pounds of soybean oil in

May. On February 20, the company acquires an option to buy 300,000 pounds of
soybean oil in May at a strike price of P1.60 per pound. Information regarding spot
prices and option values at selected dates is as follows:

February February March April20
20 28 31
Spot rate (market price) P1.61 P1.59 P1.62 P1.64
Per pound
Strike price (exercise 1.60 1.60 1.60 1.60
price)
Fair value of call option P3,800 P1,200 P6,800 P12,500

The company settled the option on April 20 and purchased 300,000 pounds of soybean
oil on May 3 at a spot price of P1.63 per pound. During May, the soybean oil was used to
produce food. One-half of the resulting food was sold in June. The change in the
option’s time value is excluded from the assessment of hedge effectiveness.
The foreign exchange gain (or loss) on option contract (hedging instrument) on
February 28:
OCI Earnings
(3,000) P400
A Pampanga food processor forecasts purchasing 300,000 pounds of soybean oil in

May. On February 20, the company acquires an option to buy 300,000 pounds of
soybean oil in May at a strike price of P1.60 per pound. Information regarding spot
prices and option values at selected dates is as follows:

February February March April20
20 28 31
Spot rate (market price) P1.61 P1.59 P1.62 P1.64
Per pound
Strike price (exercise 1.60 1.60 1.60 1.60
price)
Fair value of call option P3,800 P1,200 P6,800 P12,500

The company settled the option on April 20 and purchased 300,000 pounds of soybean
oil on May 3 at a spot price of P1.63 per pound. During May, the soybean oil was used to
produce food. One-half of the resulting food was sold in June. The change in the
option’s time value is excluded from the assessment of hedge effectiveness.
The cost of inventory that acquired on May 3:
P489,000
Certain balance sheet accounts of a foreign subsidiary in Filam, Inc at December 31,
Year 2 have been translated into Philippine pesos as follows:

Current rate Historical Rate
Accounts receivable P120,000 P100,000
Prepaid insurance 55,000 50,000
Copyright 75,000 85,000

What was the total amount included in Filam’s December 31, Year 2 consolidated
balance sheet for the above accounts?
P250,000
A subsidiary of Benilan[1], Inc. located in a foreign country whose functional

currency is the foreign currency (which is not currency of a hyperinflationary
economy). The subsidiary acquires inventory on credit on November 1,Year 1, for
100,000 foreign currencies (FC) that is sold on January 17,Year 2 for 130,000 foreign
currencies (FC). The subsidiary pays for the inventory on January 31,Year 2.
Currency exchange rates for 1 foreign currency (FC) are as follows:
November 1 ,Year 1 P0.16 = 1 FC
December 31,Year 1 0.17 = 1
January 17,Year 2 0.18 = 1
January 31,Year 2 0.19 = 1
Average for Year 2 0.20 = 1
What amount does Benilan’s consolidated balance sheet report for this inventory at
December 31,Year 1?
P17,000
If the functional currency of the subsidiary is the local currency of a foreign

subsidiary, what exchange rates should be used to translate the items below to the
functional currency of the parent, assuming the foreign subsidiary is in a country
which has not experienced hyperinflation over three years?
Equipment Inventories Depreciation Expense – Equipment
Current Rate Current Rate Average Rate

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OnSeptember 22, Year 2, Y Corporation purchased merchandise from an unaffiliated foreign

CERTS Company, a Philippine Corporation, bought inventory from a supplier in Japan on

On July 1, Year 2, ACCENTURE Company lent P308,000 to a US supplier, evidenced by an

Matthew, a money changer speculate in foreign currency as his business. On October 1,

A Pampanga food processor forecasts purchasing 300,000 pounds of soybean oil in

A Pampanga food processor forecasts purchasing 300,000 pounds of soybean oil in

The cost of inventory that acquired on May 3:

A subsidiary of Benilan[1], Inc. located in a foreign country whose functional

If the functional currency of the subsidiary is the local currency of a foreign

Current Rate Current Rate Average Rate

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