ACCOUNTING FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 1

EXERCISES

Multiple Choice

Problem 1: C/A/A/A
Req. 1:
1.92 x 200,000 = 384,000

Req. 2:
1.86 x 200,000 = 372,000

Req. 3:
384,000 – 372,000 = decrease in liab 12,000 gain

Req. 4:
372,000 – 378,000 = increase in liab 6,000 loss

Problem 2: B/A/D
Req. 1:

Sales (1/0.1230) x 150,000 1,219,512

Req. 2:
Dec. 10: (1/0.1230) x 150,000 1,219,512
Dec. 31: (1/0.1237) x 150,000 1,212,611
Forex loss (6,901)

Req. 3:

Dec. 31: (1/0.1237) x 150,000 1,212,611

Jan.25: (1/0.1235) x 150,000 1,214,575
Forex gain 1,964

Problem 3: D
Answer 2030: 2.5M – 2.6M = Increase in liability 100,000 loss
2031: 2.6M – 2.75 = Increase in liability 150,000 loss

Problem 4: B/C/B
Req. 1:
8.2 x 100,000 = 820,000

Req. 2:
8.4 x 100,000 = 840,000

Req. 3:
8.1 x 100,000 = 810,000

Problem 5: D

Machine (110K -100K) 10,000

Notes payable & Interest
Principal 800,000
Interest 800,000 x 10% x 3/12) 20,000
Total 820,000
Dec. 31: Peso equivalent (810 + 30) 840,000 20,000
30,000

Problem 6: C/C

Req. 1:
49.60 – 47.45 = 2.15 x 35,000 = 75,250 loss
Req. 2: Selling spot rate shipping date 47.45 x 35,000 =1,660,750

Problem 7: B
1/8 x 1,260,000 LCU = P157,500 - 210,000 = (52,500)
 ACCOUNTING FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 2
Problem 8: A

Dec. 31, 20x2 Balance sheet 600,000

Oct. 1, 20x3 Settlement (NT $1,200,000 x 1/1.6) 750,000
Forex gain 150,000

Problem 9: C

Accounts payable 1,000,000

Accrued expenses 500,000
Bonds payable 3,000,000
Finance lease liability 4,000,000
Total 8,500,000

Problem 10: B/C/A/

Req. 1:
¥1,000,000 yen x ½ = ¥500,000 x P0.46

Req. 2:
400,000 bath x P1.25

Req. 3:
Purchase
December 1, 2030. 0.46
December 31, 2030. 0.47
Increase in Liability 0.01
x 1M yen 1,000,000
Forex loss 10,000

Sale
December 10, 2030. 1.28
December 31, 2030. 1.25
Decrease in receivable (0.03)
x 400,000 baht 400,000
Forex loss (12,000)

Problem 11: C
Cash 2,000,000
Accounts receivables 4,000,000
Advances to employees 200,000
Total 6,200,000

Problem 12: C/A

Req. 1:
P48 x $100,000

Req. 2:
48 – 46 = 2 Decrease in liab x $100,000 = 200,000 gain

Problem 13: B

Problem 14: B

Problem 15: C
Equipment 1,800,000
x Rate 0.45
Total 810,000

Problem 16: B/D

Req. 1:
Depreciation expense -equipment (acquired 2/1/2025) 16,000
Doubtful account expense (receivable recorded on 8/1/2030) 3,200
Salary expense (occurred evenly throughout the year) 32,000
Insurance expense (paid 12/1/2030) 6,400
Utilities expense (occurred evenly throughout the year) 19,200
Total expenses 76,800
x Closing rate 30
Total translated expenses 2,304,000
 ACCOUNTING FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 3
Req. 2:
Depreciation expense -equipment (acquired 2/1/2025) 16,000
Doubtful account expense (receivable recorded on 8/1/2030) 3,200
Salary expense (occurred evenly throughout the year) 32,000
Insurance expense (paid 12/1/2030) 6,400
Utilities expense (occurred evenly throughout the year) 19,200
Total expenses 76,800
x Average rate 29
Total translated expenses 2,227,200

Problem 17: A

Index Restated Rate T ranslated

Cash 30,000 30,000 55 1,650,000
Accounts receivable, short term 70,000 70,000 55 3,850,000
Notes receivable, long term 150,000 150,000 55 8,250,000
P repaid interest 50,000 50,000 55 2,750,000
P roperty, plant and equipment (acquired 2025) 500,000 425/100 2,125,000 55 116,875,000
133,375,000

Problem 18: B/C/A/B

Req. 1 - 4

FC Fraction Restatement Rate Peso

Sales 650,000 200/175 742,857 30 22,285,714
Less: Cost of Sales:
Beginning Inventory 100,000 200/120 166,667 30 5,000,000
Net Purchases 400,000 200/175 457,143 30 13,714,286
Total goods available for sale 500,000 623,810 18,714,286
Ending Inventory (150,000) 200/175 (171,429) 30 (5,142,857)
Total 350,000 452,381 13,571,429
Gross Profit 300,000 290,476 8,714,286
Depreciation expense - equipment (20,000) 200/100 (40,000) 30 (1,200,000)
Other Operating expenses (100,000) 200/175 (114,286) 30 (3,428,571)

Problem 19: A

NZ Rate Peso
Total Assets 146,000 10 1,460,000

Total Liabilities 45,000 10 450,000

Common Stock 60,000 11 660,000
Retained Earnings 41,000 475,000
C. Translation adjustments (125,000)
Total Liabilities and SHE 1,460,000

Retained Earnings beg 29,000 325,000

Net Income 15,000 12 180,000
Dividends Declared (3,000) 10 (30,000)
Retained Earnings end 41,000 475,000

Problem 20: C/A

Req. 1 - 2

Debit Credit Rates Debit Credit

Cash 1,240,000 50.50 62,620,000
Accounts receivable 260,000 50.50 13,130,000
Inventory 150,000 50.50 7,575,000
Property, Plant & Equipment 300,000 50.50 15,150,000
Accum. Depreciation 50,000 50.50 2,525,000
Accounts payable 80,000 50.50 4,040,000
Notes payable 120,000 50.50 6,060,000
Ordinary shares 1,000,000 50.20 50,200,000
Retained earnings 600,000 30,000,000
Sales 450,000 50.10 22,545,000
Cost of Sales 300,000 50.10 15,030,000
Operating expenses 40,000 50.10 2,004,000
Depreciation 10,000 50.10 501,000
C. Translation Adj 640,000
Total 2,300,000 2,300,000 116,010,000 116,010,000
 ACCOUNTING FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 4
Problem 21: C

Singaporean Dollar
Beginning Inventory 100,000
Net Purchases 600,000
Ending Inventory (80,000)
Cost of Goods Sold 620,000
x Average rate 41
Total 25,420,000

Problem 22: B
Answer use the current rate amounts

Problem 23: C
Sales 3,000,000
Cost of Goods Sold 1,635,000
Gross profit 1,365,000
Depreciation expense 285,000
Net income 1,080,000

Problem 24: A
Cash 350,000
Accounts receivable 1,500,000
Property, plant and equipment 3,800,000
Total assets 5,650,000

Accounts payable 2,860,000

Ordinary shares 2,360,000
Retained earnings 550,000
C. T. adjustments (squeeze) (120,000)
Total Liabilities and SHE 5,650,000

Sales 2,750,000
Cost of Goods Sold (1,870,000)
Depreciation expense (180,000)
Net Income 700,000
Dividends (150,000)
Retained earnings 550,000

Problem 25: A

Cumulative T. Adj end - credit 600,000

Cumulative T. Adj beg - credit (430,000)
Translation adjustment - 2031 170,000
x Controlling interest 80%
Total - credit 136,000
Problem 26: C

1/1.25 = 0.8 x 2,640,000 = 2,112,000

Problem 27: D

1,000 – 100 = 900 x 40 = 36,000

Problem 28: C/C

Fair Value of Consideration Received (80%) 60K x P60 3,600,000
Fair Value of Retained interest in former subsidiary -
Carrying Value of non-controlling interests held by other investor 400,000
Total 4,000,000
Carrying amount of Identifiable net assets of subsidiary (3,500,000)
Goodwill (if any) (120,000)
Gain (loss) on disposal 380,000

Req. 1; Gain on disposal 380,000 + gain on translation 60,000 = 440,000

Cash 3,600,000
NCI 400,000
Identifiable Net Assets 3,500,000
Goodwill 120,000
Gain on disposal 380,000
To record the disposal of entire investment in Zoe
 ACCOUNTING FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 5
Translation adjustment 60,000
Gain on Translation 60,000
To record the transfer of translation adjustment to
profit or loss

Problem 29: B
Acquisition Costs $150,000
FVNA (120,000)
GW 30,000
x rate (1/.02) P50
Goodwill in Peso 1,500,000
Problem 30: D
Sales 2,000,000 360/250 2,880,000
Cost of Goods Sold
Inventory, Jan. 1 140,000 360/140 360,000
Purchases 1,000,000 360/250 1,440,000
TGAS 1,140,000 1,800,000
Inventory, Dec. 31 (200,000) 360/360 (200,000)
Total 940,000 1,600,000
Gross Profit 1,060,000 1,280,000
Expenses (800,000) 360/250 (1,152,000)
Depreciation (800,000) 360/100 (2,880,000)
Net Income (loss) (540,000) (2,752,000)
x Closing rate 26
(71,552,000)

Problem 31: D
Equipment carrying amount
($18,000 - $3,600 = 14,400 x P6.5) 93,600
Equipment recoverable amount
(12,800 x 6.70) 85,760
Impairment loss 7,840

Problem 32: D
Appraised Value (¥1,500,000 x P0.48) 720,000
Book Value (1.3M x 4/5 = 1,040,000 xP0.45) 468,000
Revaluation surplus 252,000

Problem 33: B/C

Req. 1
NR (monetary) 1M won x P.09 90,000
MI (non-monetary) 250,000 won x P.06 15,000

Req. 2
NR P90,000 x $.028 2,520
MI P15,000 x $.028 420

Problem 34: C

Problem 35: D

Problem 36: A

Problem 37: A

Problem 38: D

Problem 39 B

Problem 40: A

Problem 41: D

Problem 42: A
Problem 43: D
Problem 44: C

Problem 45: A

Problem 46: C

Problem 47: C

Problem 48: B
 ACCOUNTING FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 6
Problem 49: C

Problem 50: A

Problem 51: D

Problem 52: A

Problem 53: D

Problem 54: A

Problem 55: D

Problem 56: C

Problem 57: B

Problem 58: C

Problem 59: A

Problem 60: A
Problem 61: B

Problem 62: B

Problem 63: B

Problem 64: D

Problem 65: D

STRAIGHT PROBLEMS

Problem 1:
November 20, 2030.
Accounts receivable 2,292,000
Sales (38.2 x 60,000) 2,292,000
To record the sale of goods
December 31, 2030.
Forex loss (P38 - 38.20) x 60,000 12,000
Accounts receivable 12,000
To record the foreign exchange difference
January 20, 2031.
Cash (37.92 x 60,000) 2,275,200
Forex loss (37.92 - 38) x 60,000 4,800
Accounts receivable 2,280,000
To record the settlement of sales transaction

Problem 2:
November 29, 2030.
Equipment 1,310,000
Accounts payable 1,310,000
To record the purchase of equipment
December 31, 2030.
Forex loss (6.58 - 6.55) x 200K 6,000
Accounts payable 6,000
To record the foreign exchange difference
January 15, 2031.
Accounts payable 1,316,000
Cash (200K x P6.50) 1,300,000
Forex gain (6.58 - 6.50) x 200K 16,000
To record the settlement of purchase transaction

Problem 3

Aug. 5
Accounts Receivable 57,600
Sales 57,600
To record the sale of goods
(120,000 yen x P0.48)
 ACCOUNTING FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 7
Aug. 10
Accounts Receivable 13,500
Sales 13,500
To record the sale of goods
(300,000 won x P0.045)

Sept. 1
Cash (120,000 x P0.50) 60,000
Accounts receivable 57,600
Forex gain 2,400
To record the settlement

Sept. 9
Cash (300,000 x P0.042) 12,600
Forex loss 900
Accounts receivable 13,500
To record the settlement

Problem 4:

Impairment loss 5,720

Accumulated depreciation 5,720
To recognize impairment of equipment

Equipment carrying amount

($12,000 Cost - $2,400 Accum. Dep. = $9,600 x P38) 364,800
Equipment recoverable amount ($9,400 x 38.2) 359,080
Impairment loss 5,720

Problem 5:

Impairment loss 1,025

Inventory 1,025
To recognize inventory write-down

Inventory at original cost (250,000 x P.45) 112,500

Inventory at net realizable value (245,000 x P0.455) 111,475
Impairment loss 1,025

Problem 6:

Equipment 44,000
Revaluation surplus 44,000
To record the revaluation of equipment

Equipment appraised value (2.6M won x P0.050) 130,000

Equipment carrying amount (2.5M x P0.043 x 4/5) 86,000
Revaluation surplus (OCI) 44,000

Problem 7:

Total Assets 500,000 3.40 1,700,000

Less:
Total Liabilities 100,000 3.40 340,000
Common Stock 250,000 3.10 775,000
Retained earnings 150,000 460,000
Total Cumulative Translation Adjustments 125,000

Problem 8:
2019
Net Assets beg
Ordinary shares 5,000 40 200,000
Preference shares 8,000 42 336,000
Net Income 6,200 300,000
Dividend - -
Net Assets end 19,200 836,000
Net Assets end 19,200 43 825,600
Translation adjustment - 2019 (10,400)
C. Translation adjustment beg -
C. Translation adjustment end (10,400)
 ACCOUNTING FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 8
2020
Net Assets beg 19,200 825,600
Net Income 1,000 44 44,000
Dividend (200) 41 (8,200)
Net Assets end 20,000 861,400
Net Assets end 20,000 45 900,000
Translation adjustment - 2020 38,600
C. Translation adjustment beg (10,400)
C. Translation adjustment end 28,200

a. Cumulative translation adjustments to be presented in the statement of financial position

$ P
Current assets 10,000 45 450,000
Non-Current assets 40,000 45 1,800,000
Total Assets 50,000 2,250,000

Current Liabilities 10,000 45 450,000

Non-Current liabilities 20,000 45 900,000
Ordinary share 5,000 40 200,000
Preference share 8,000 42 336,000
Retained earnings 7,000 335,800
Cum. Translation Adjustments 28,200
Total Liabilities 50,000 2,221,800
(28,200)
Retained earnings beg 6,200 300,000
Net income 1,000 44 44,000
Dividends (200) 41 (8,200)
Retained eanings end 7,000 335,800

Problem 9:

Fair Value of Consideration Received (75%) $120K x P51.2 6,144,000

Fair Value of Retained interest in former subsidiary (20%) 1,500,000
Carrying Value of non-controlling interests held by other investor 800,000
Total 8,444,000
Carrying amount of Identifiable net assets of subsidiary (8,000,000)
Goodwill (if any) (600,000)
Gain (loss) on disposal (156,000)

Cash 6,144,000
Investment in associates 1,500,000
NCI 800,000
Loss on disposal 156,000
Net Identifiable assets 8,000,000
Goodwill 600,000
To record the disposal of 75% interest in Air Company

Translation adjustment 100,000

Gain on Translation 100,000
To record the transfer of translation adjustment to profit or loss

Revaluation surplus 150,000

Retained earnings 150,000
To record the transfer of revaluation surplus to retained earnings
 ACCOUNTING FOR THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 9
Problem 10:

$ Index Restated Rate T ranslated

Sales 337,500 500/400 421,875 49 20,671,875
COGS
Inventory, Jan. 1 50,000 500/200 125,000 49 6,125,000
Net purchases 222,500 500/400 278,125 49 13,628,125
T GAS 272,500 403,125 19,753,125
Inventory Dec. 31 (60,000) 500/400 (75,000) 49 (3,675,000)
T otal 212,500 328,125 16,078,125
Gross P rofit 125,000 93,750 4,593,750
Other expenses (20,000) 500/400 (25,000) 49 (1,225,000)
Loss on net monetary
position (65,000) 49 (3,185,000)
Net Income 105,000 3,750 183,750

Cash 405,000 405,000 49 19,845,000

Accounts receivable 81,000 81,000 49 3,969,000
Land and building 202,500 500/100 1,012,500 49 49,612,500
T otal Assets 688,500 1,498,500 73,426,500

Accounts payable 81,000 81,000 49 3,969,000

Bonds payable - 10% 202,500 202,500 49 9,922,500
Ordinary shares 225,000 500/100 1,125,000 49 55,125,000
Retained earnings 160,000! balancing 90,000 49 4,410,000
T otal Liabilities and SHE 668,500 1,498,500 73,426,500
Problem 11:
Req. 1
Sales (1,200,000 baht x $.030) $36,000
Accounts receivable (1,200,000 baht x $.024) $30,000
For Sales account use the exchange rate on the date of transaction while use the closing rate for the
accounts receivable

Req. 2
Sales ($36,000 x P50) P1,800,000
Accounts receivable ($30,000 x P52) P1,560,000

For sales account use the average exchange rate

For accounts receivable use the closing rate