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Student:

1. If 1 British pound can be exchanged for 180 cents of U.S. currency, what fraction should be used to
compute the indirect quotation of the exchange rate expressed in British pounds?
A. 1/180
B. 1/.56
C. 1.8/1
D. 1/1.8
2. Suppose the direct foreign exchange rates in U.S. dollars are:
1 Singapore dollar = $.7025
1 Cyprus pound = $2.5132
Based on the information given above, the indirect exchange rates for the Singapore dollar and the
Cyprus Pound (from a U.S. perspective) are:
A. 1.7655 Singapore dollars and 1.4235 Cyprus pounds respectively.
B. 0.2975 Singapore dollars and 1.5132 Cyprus pounds respectively.
C. 2.1622 Singapore dollars and 0.4625 Cyprus pounds respectively.
D. 1.4235 Singapore dollars and 0.3979 Cyprus pounds respectively.
3. Suppose the direct foreign exchange rates in U.S. dollars are:
1 Singapore dollar = $.7025
1 Cyprus pound = $2.5132
Based on the information given above, how many U.S. dollars must be paid for a purchase of citrus fruits
costing 10,000 Cyprus pounds?
A. $25,132
B. $15,132
C. $3,979
D. $35,775
4. Suppose the direct foreign exchange rates in U.S. dollars are:
1 Singapore dollar = $.7025
1 Cyprus pound = $2.5132
Based on the information given above, how many Singapore dollars are required to purchase goods
costing 10,000 US dollars?
A. 7,025
B. 14,235
C. 17,655
D. 2,975
5. Upon arrival in Chile, Karen exchanged $1,000 of U.S. currency into 480,000 Chilean Pesos. While
returning after her two month visit, she exchanged her remaining 50,000 Pesos into $100 of U.S.
currency. What amount of gain or a loss did Karen experience on the 50,000 pesos she held during her
visit and converted to U.S. dollars at the departure date?
A. Loss of $4.
B. Gain of $4.
C. Loss of $6.
D. No gain or loss.
6. Chicago based Corporation X has a number of importing transactions with companies based in UK.
Importing activities result in payables. If the settlement currency is the British Pound, which of the
following will happen by changes in the direct or indirect exchange rates?

A. Option A
B. Option B
C. Option C
D. Option D
7. Chicago based Corporation X has a number of exporting transactions with companies based in Sweden.
Exporting activities result in receivables. If the settlement currency is the Swedish Krona, which of the
following will happen by changes in the direct or indirect exchange rates?

A. Option A
B. Option B
C. Option C
D. Option D
8. Corporation X has a number of exporting transactions with companies based in Vietnam. Exporting
activities result in receivables. If the settlement currency is the US dollar, which of the following will
happen by changes in the direct or indirect exchange rates?

A. Option A
B. Option B
C. Option C
D. Option D
9. Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian reais on December 1,
20X8, with payment due on January 20, 20X9. The exchange rates were:

Based on the preceding information, which of the following is true of dollar's movement vis-à-vis
Brazilian real during the period?

A. Option A
B. Option B
C. Option C
D. Option D
10. Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian reais on December 1,
20X8, with payment due on January 20, 20X9. The exchange rates were:

Based on the preceding information, what is the Heavy's overall net gain or net loss from its foreign
currency exposure related to this transaction?
A. $4,860 loss
B. $2,600 loss
C. $9,018 gain
D. $2,260 gain
11. Mint Corporation has several transactions with foreign entities. Each transaction is denominated in
the local currency unit of the country in which the foreign entity is located. On October 1, 20X8, Mint
purchased confectionary items from a foreign company at a price of LCU 5,000 when the direct exchange
rate was 1 LCU = $1.20. The account has not been settled as of December 31, 20X8, when the exchange
rate has decreased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint's records at year-end for
this transaction will be:
A. $500 loss
B. $500 gain
C. $378 gain
D. $5,500 loss
12. Mint Corporation has several transactions with foreign entities. Each transaction is denominated in the
local currency unit of the country in which the foreign entity is located. On November 2, 20X8, Mint
sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate
was 1 LCU = $1.08. The account has not been settled as of December 31, 20X8, when the exchange rate
has increased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint's records at year-end for this
transaction will be:
A. $460 loss
B. $387 loss
C. $387 gain
D. $460 gain
13. On September 3, 20X8, Jackson Corporation purchases goods for a U.S. dollar equivalent of $17,000
from a Swiss company. The transaction is denominated in Swiss francs (SFr). The payment is made on
October 10. The exchange rates were:

What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on October 10?

A. Option A
B. Option B
C. Option C
D. Option D
14. On March 1, 20X8, Wilson Corporation sold goods for a U.S. dollar equivalent of $31,000 to a Thai
company. The transaction is denominated in Thai bahts. The payment is received on May 10. The
exchange rates were:

What entry is required to revalue foreign currency payable to U.S. dollar equivalent value on May 10?

A. Option A
B. Option B
C. Option C
D. Option D
15. On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm
for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is denominated in Saudi riyals.
Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange
rates are:

Based on the preceding information, what journal entry would Imperial make on December 31, 20X8, to
revalue foreign currency payable to equivalent U.S. dollar value?

A. Option A
B. Option B
C. Option C
D. Option D
16. On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm
for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is denominated in Saudi riyals.
Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange
rates are:

Based on the preceding information, what journal entry would Imperial make on January 10, 20X9, to
revalue foreign currency payable to equivalent U.S. dollar value?

A. Option A
B. Option B
C. Option C
D. Option D
17. On December 5, 20X8, Texas based Imperial Corporation purchased goods from a Saudi Arabian firm
for 100,000 riyals (SAR), to be paid on January 10, 20X9. The transaction is denominated in Saudi riyals.
Imperial's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange
rates are:

Based on the preceding information, what was the overall foreign currency gain or loss on the accounts
payable transaction?
A. $300 loss
B. $200 loss
C. $100 gain
D. $200 gain
18. Spartan Company purchased interior decoration material from Egypt for 100,000 Egyptian pounds on
September 5, 20X8, with payment due on December 2, 20X8. Additionally, on September 5, Spartan
acquired a 90-day forward contract to purchase 100,000 Egyptian pounds of E£ = $.1850. The forward
contract was acquired to manage the exposed net liability position in Egyptian pounds, but it was not
designated as a hedge. The spot rates were:

Based on the preceding information, in the entry made on December 2 nd to revalue foreign currency
receivable to current equivalent U.S. dollar value,
A. Accounts Payable will be debited for $18,350.
B. Foreign Currency Units will be debited for $18,500.
C. Foreign Currency Transaction Gain will be credited for $150.
D. Other Comprehensive Income will be credited for $300.
19. Spartan Company purchased interior decoration material from Egypt for 100,000 Egyptian pounds on
September 5, 20X8, with payment due on December 2, 20X8. Additionally, on September 5, Spartan
acquired a 90-day forward contract to purchase 100,000 Egyptian pounds of E£ = $.1850. The forward
contract was acquired to manage the exposed net liability position in Egyptian pounds, but it was not
designated as a hedge. The spot rates were:

Based on the preceding information, what is the entry required to settle foreign currency payable on
December 2?

A. Option A
B. Option B
C. Option C
D. Option D
20. Detroit based Auto Corporation, purchased ancillaries from a Japanese firm on December 1, 20X8, for
1,000,000 Yen, when the spot rate for Yen was $.0095. On December 31, 20X8, the spot rate stood
at $.0096. On January 10, 20X9 Auto paid 1,000,000 Yen acquired at a rate of $.0094. Auto's income
statements should report a foreign exchange gain or loss for the years ended December 31, 20X8 and
20X9 of:

A. Option A
B. Option B
C. Option C
D. Option D
21. On November 1, 20X8, Denver Company borrowed 500,000 local currency units (LCU) from a foreign
lender evidenced by an interest-bearing note due on November 1, 20X9, which is denominated in the
currency of the lender. The U.S. dollar equivalent of the note principal was as follows:

In its income statement for 20X9, what amount should Denver include as a foreign exchange gain or loss
on the note principal?
A. 15,000 gain
B. 25,000 gain
C. 15,000 loss
D. 40,000 loss
22. Company X denominated a December 1, 20X9, purchase of goods in a currency other than its functional
currency. The transaction resulted in a payable fixed in terms of the amount of foreign currency, and was
paid on the settlement date, January 10, 2010. Exchange rates moved unfavorably at December 31, 20X9,
resulting in a loss that should:
A. be included as a separate component of stockholders' equity at Dec. 31, 20X9.
B. be included as a component of income from continuing operations for 20X9.
C. be included as a deferred charge at December 31, 20X9.
D. not be reported until January 10, 2010, the settlement date.
23. Note: This is a Kaplan CPA Review Question
On September 1, 20X1, Bain Corp. received an order for equipment from a foreign customer for 300,000
local currency units (LCU) when the U.S. dollar equivalent was $96,000. Bain shipped the equipment
on October 15, 20X1, and billed the customer for 300,000 LCU when the U.S. dollar equivalent was
$100,000. Bain received the customer's remittance in full on November 16, 20X1, and sold the 300,000
LCU for $105,000. In its income statement for the year ended December 31, 20X1, Bain should report a
foreign exchange gain of
A. $9,000
B. $4,000
C. $0
D. $5,000
24. Note: This is a Kaplan CPA Review Question
On September 22, 20X1, Yumi Corp. 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 $.55. Yumi paid
the bill in full, six months later, on March 20, 20X2, when the spot rate was $.65. The spot rate was $.70
on December 31, 20X1. What amount should Yumi report as a foreign currency transaction loss in its
income statement for the year ended December 31, 20X1?
A. $500
B. $0
C. $1,500
D. $1,000
25. Note: This is a Kaplan CPA Review Question
Hunt Co. purchased merchandise for 300,000 British pounds from a vendor in London on November
30, 20X1. Payment in British pounds was due on January 30, 20X2. The exchange rates to purchase one
pound were as follows:

In its December 31, Year One, income statement, what amount should Hunt report as foreign exchange
gain?
A. $9,000
B. $12,000
C. $6,000
D. $0
26. Note: This is a Kaplan CPA Review Question
Sphinx Co. (Sphinx) records its transactions in U.S. dollars. A sale of goods resulted in a receivable
denominated in Japanese yen, and a purchase of goods resulted in a payable denominated in Euros.
Sphinx recorded a foreign exchange transaction gain on collection of the receivable and an exchange
transaction loss on the settlement of the payable. The exchange rates are expressed as so many units
of foreign currency to one dollar. Did the number of foreign currency units exchangeable for a dollar
increase or decrease between the contract and settlement dates?

A. Option A
B. Option B
C. Option C
D. Option D
27. Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January
1, 20X9 with settlement to be in 60 days. On the same date, Alman entered into a 60-day forward contract
to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign
currency receivable. The forward contract is not designated as a hedge. The spot rates were:

Based on the preceding information, the entry to revalue foreign currency payable to current U.S. dollar
value on March 1 will have:
A. a credit to Foreign Currency Transaction Gain for $1,500.
B. a debit to Foreign Currency Transaction Loss for $2,500.
C. a debit to Foreign Currency Transaction Loss for $1,500.
D. a credit to Foreign Currency Transaction Gain for $1,000.
28. Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January
1, 20X9 with settlement to be in 60 days. On the same date, Alman entered into a 60-day forward contract
to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign
currency receivable. The forward contract is not designated as a hedge. The spot rates were:

Based on the preceding information, what is the overall effect on net income of Myway's use of the
forward exchange contract?
A. Net loss of $1,000
B. Net gain of $1,500
C. Net loss of $500
D. No effect
29. Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January
1, 20X9 with settlement to be in 60 days. On the same date, Alman entered into a 60-day forward contract
to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign
currency receivable. The forward contract is not designated as a hedge. The spot rates were:

Based on the preceding information, had Myway not used the forward exchange contract, net income for
the year would have:
A. increased by $1,000.
B. increased by $500.
C. decreased by $1,000.
D. decreased by $1,500.
30. Levin company entered into a forward contract to speculate in the foreign currency. It sold 100,000
foreign currency units under a contract dated November 1, 20X8, for delivery on January 31, 20X9:

In its income statement for the year ended December 31, 20X8, what amount of loss should Levin report
from this forward contract?
A. $0
B. $300
C. $200
D. $100
31. Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1,
20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-
day forward contract to purchase 100,000 Swiss francs. The forward contract is not designated as a
hedge. The rates were as follows:

Based on the preceding information, the entries on December 31, 20X8, include a:
A. Credit to Foreign Currency Payable to Exchange Broker, $4,000.
B. Debit to Foreign Currency Receivable from Exchange Broker, $6,000.
C. Debit to Foreign Currency Receivable from Exchange Broker, $186,000.
D. Debit to Foreign Currency Transaction Gain, $4,000.
32. Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1,
20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-
day forward contract to purchase 100,000 Swiss francs. The forward contract is not designated as a
hedge. The rates were as follows:

Based on the preceding information, the entries on January 30, 20X9, include a:
A. Debit to Dollars Payable to Exchange Broker, $180,000.
B. Credit to Cash, $184,000.
C. Credit to Premium on Forward Contract, $4,000.
D. Credit to Foreign Currency Receivable from Exchange Broker, $180,000.
33. Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1,
20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-
day forward contract to purchase 100,000 Swiss francs. The forward contract is not designated as a
hedge. The rates were as follows:

Based on the preceding information, the entries on January 30, 20X9, include a:
A. Credit to Foreign Currency Units (SFr), $184,000.
B. Credit to Cash, $180,000.
C. Debit to Foreign Currency Transaction Loss, $4,000.
D. Debit to Dollars Payable to Exchange Broker, $184,000.
34. Taste Bits Inc. purchased chocolates from Switzerland for 200,000 Swiss francs (SFr) on December 1,
20X8. Payment is due on January 30, 20X9. On December 1, 20X8, the company also entered into a 60-
day forward contract to purchase 100,000 Swiss francs. The forward contract is not designated as a
hedge. The rates were as follows:

Based on the preceding information, the entries on January 30, 20X9, include a:
A. Debit to Dollars Payable to Exchange Broker, $184,000.
B. Credit to Foreign Currency Transaction Gain, $4,000.
C. Credit to Foreign Currency Receivable from Exchange Broker, $180,000.
D. Debit to Foreign Currency Units (SFr), $184,000.
35. On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell
200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day
speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.
The rates are as follows:

Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.
Based on the preceding information, what is the effect of the British pound speculative contract on 20X8
net income?
A. $10,000 gain
B. $6,000 gain
C. $8,000 gain
D. $2,000 loss
36. On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell
200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day
speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.
The rates are as follows:

Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.
Based on the preceding information, what is the overall effect of speculation on 20X8 net income?
A. $4,000 gain
B. $6,000 gain
C. $8,000 loss
D. $8,000 gain
37. On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell
200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day
speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.
The rates are as follows:

Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.
Based on the preceding information, what is the effect of the euro speculative contract on 20X9 net
income?
A. $4,000 loss
B. $1,000 gain
C. $8,000 gain
D. $2,000 loss
38. On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell
200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day
speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.
The rates are as follows:

Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.
Based on the preceding information, what is the overall effect of speculation on 20X9 net income?
A. $1,000 loss
B. $6,000 gain
C. $3,000 loss
D. $8,000 gain
39. On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell
200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day
speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.
The rates are as follows:

Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.
Based on the preceding information, what is the net gain or loss on the British pound speculative
contract?
A. $8,000 gain
B. $6,000 gain
C. $3,000 loss
D. $10,000 gain
40. On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell
200,000 British pounds (£) at a forward rate of £1 = $1.78. On the same day it purchased a 60-day
speculative forward contract to buy 100,000 euros (€) at a forward rate of €1 = $1.42.
The rates are as follows:

Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.
Based on the preceding information, what is the net gain or loss on the euro speculative contract?
A. $8,000 gain
B. $6,000 gain
C. $3,000 loss
D. $1,000 loss
41. Which of the following observations is true of forwards contracts?
A. Substantial margin is required to initiate a contract.
B. Must be completed either with the underlying's future delivery or net cash settlement.
C. Cannot be customized; for a specific amount at a specific date.
D. Usually settled with a net cash amount prior to maturity date.
42. Note: This is a Kaplan CPA Review Question
On September 1, 20X1, Brady Corp. entered into a foreign exchange contract for speculative purposes by
purchasing 50,000 deutsche marks for delivery in 60 days. The rates to exchange $1 for 1 deutsche mark
follow:

In its September 30, 20X1 income statement, what amount should Brady report as foreign exchange loss?

A. $1,000
B. $2,500
C. $1,500
D. $500
43. All of the following are true statements when measuring hedge effectiveness except:
A Effectiveness means there is an approximate offset with the range of 80% to 125% of the changes in
. the fair value of the cash flows.
B. Effectiveness means there is an approximate offset in fair value to the risk being hedged.
C. A Company may elect to choose from several different measures for assessing hedge effectiveness.
D. Effectiveness must be assessed at least annually when the company reports their annual financial
statements.
44. All of the following are management tools available for a U.S. company to hedge its net investment in a
foreign affiliate except for:
A. Forward exchange contracts
B. Foreign currency commitments
C. Intercompany financing arrangements including intercompany transactions
D. None of these.
45. The fair market value of a near-month call option with a strike price of $45 is $5, when the stock is
trading at $48.
Based on the preceding information, which of the following is true of the intrinsic and time values
associated with this option.

A. Option A
B. Option B
C. Option C
D. Option D
46. The fair market value of a near-month call option with a strike price of $45 is $5, when the stock is
trading at $48.
Based on the preceding information, the call option:
A. has no intrinsic value currently.
B. is at the money.
C. is out of the money.
D. is in the money.
47. An investor purchases a put option with a strike price of $100 for $3. This option is considered "in the
money" if the underlying is trading:
A. below $100.
B. at $100.
C. above $100.
D. above $103.
48. Which of the following observations is true of futures contracts?
A. Contracted through a dealer, usually a bank.
B. Customized to meet contracting company's terms and needs.
C. Typically no margin deposit required.
D. Traded on an exchange and acquired through an exchange broker.
49. Company X issues variable-rate debt but wishes to fix its interest rates because it believes the variable
rate may increase. Company Y has a fixed-rate bond but is looking for a variable-rate interest because
it assumes the interest rates may decrease. The two companies agree to exchange cash flows. Such an
arrangement is called:
A. a futures contract.
B. a forward contract.
C. a swap.
D. an option.
50 Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-
hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November
30, 20X8, AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4
per barrel, with a February 1, 20X9, call date. The following is the pricing information for the term of the
call:

The information for the change in the fair value of the options follows:

On February 1, 20X9, AMAR sells the options at their value on that date and acquires 20,000 barrels of
oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112 per barrel.
Based on the preceding information, which of the following adjusting entries would be required on
December 31, 20X8?

A. Option A
B. Option B
C. Option C
D. Option D
51 Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-
hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November
30, 20X8, AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4
per barrel, with a February 1, 20X9, call date. The following is the pricing information for the term of the
call:

The information for the change in the fair value of the options follows:

On February 1, 20X9, AMAR sells the options at their value on that date and acquires 20,000 barrels of
oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112 per barrel.
Based on the preceding information, in the entry to record the increase in the intrinsic value of the options
on December 31, 20X8,
A. Purchased Call Options will be credited for $100,000.
B. Purchased Call Options will be debited for $130,000.
C. Retained Earnings will be credited for $100,000.
D. Other Comprehensive Income will be credited for $100,000.
52 Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-
hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November
30, 20X8, AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4
per barrel, with a February 1, 20X9, call date. The following is the pricing information for the term of the
call:

The information for the change in the fair value of the options follows:

On February 1, 20X9, AMAR sells the options at their value on that date and acquires 20,000 barrels of
oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112 per barrel.
Based on the preceding information, which of the following entries will be required on February 1, 20X9?

A. Option A
B. Option B
C. Option C
D. Option D
53 Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-
hedging device to hedge the expected increase in prices on an anticipated purchase of oil. On November
30, 20X8, AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4
per barrel, with a February 1, 20X9, call date. The following is the pricing information for the term of the
call:

The information for the change in the fair value of the options follows:

On February 1, 20X9, AMAR sells the options at their value on that date and acquires 20,000 barrels of
oil at the spot price. On April 1, 20X9, AMAR sells the oil for $112 per barrel.
Based on the preceding information, the entries made on April 1, 20X9 will include:
A. a debit to Other Comprehensive Income for $200,000.
B. a debit to Cost of Goods Sold for $2,240,000.
C. a credit to Oil Inventory for $2,240,000.
D. a credit to Cost of Goods Sold for $100,000.
54. On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40
per share. Winston classifies them as available-for-sale securities. On this same date, it decides to hedge
against a possible decline in the value of the securities by purchasing, at a cost of $250, an at-the-money
put option to sell the 100 shares at $40 per share. The option expires on February 20, 20X9. Selected
information concerning the fair values of the investment and the options follow:

Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9.
Based on the preceding information, what is the market price of Linked Corporation stock on December
31, 20X8?
A. $40
B. $37
C. $36
D. $38
55. On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40
per share. Winston classifies them as available-for-sale securities. On this same date, it decides to hedge
against a possible decline in the value of the securities by purchasing, at a cost of $250, an at-the-money
put option to sell the 100 shares at $40 per share. The option expires on February 20, 20X9. Selected
information concerning the fair values of the investment and the options follow:

Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9.
Based on the preceding information, what is the market price of Linked Corporation stock on February
20, 20X9?
A. $35
B. $37
C. $36
D. $40
56. On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40
per share. Winston classifies them as available-for-sale securities. On this same date, it decides to hedge
against a possible decline in the value of the securities by purchasing, at a cost of $250, an at-the-money
put option to sell the 100 shares at $40 per share. The option expires on February 20, 20X9. Selected
information concerning the fair values of the investment and the options follow:

Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9.
Based on the preceding information, the journal entry made on December 31, 20X8 to record decrease in
the time value of the options will include:
A. a debit to Loss on Hedge Activity for $150.
B. a credit to Put Option for $300.
C. a debit to Loss on Hedge Activity for $300.
D. a credit to Put Option for $100.
57. On December 1, 20X8, Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40
per share. Winston classifies them as available-for-sale securities. On this same date, it decides to hedge
against a possible decline in the value of the securities by purchasing, at a cost of $250, an at-the-money
put option to sell the 100 shares at $40 per share. The option expires on February 20, 20X9. Selected
information concerning the fair values of the investment and the options follow:

Assume that Winston exercises the put option and sells Linked shares on February 20, 20X9.
Based on the preceding information, which of the following journal entries will be made on February 20,
20X9?

A. Option A
B. Option B
C. Option C
D. Option D
58. Quantum Company imports goods from different countries. Some transactions are denominated in U.S.
dollars and others in foreign currencies. A summary of accounts receivable and accounts payable on
December 31, 20X8, before adjustments for the effects of changes in exchange rates during 20X8, follows:

The spot rates on December 31, 20X8, were:

The average exchange rates during the collection and payment period in 20X9 are:

Required:
1) Prepare the adjusting entries on December 31, 20X8.
2) Record the collection of the accounts receivable and the payment of the accounts payable in 20X9.
3) What was the foreign currency gain or loss on the accounts receivable transaction denominated in SFr
for the year ended December 31, 20X8? For the year ended December 31, 20X9? Overall for this
transaction?
4) What was the foreign currency gain or loss on the accounts receivable transaction denominated in ¥?
For the year ended December 31, 20X8? For the year ended December 31, 20X9? Overall for this
transaction?
59. On December 1, 20X8, Secure Company bought a 90-day forward contract to purchase 200,000 euros (€)
at a forward rate of €1 = $1.35 when the spot rate was $1.33. Other exchange rates were as follows:

Required:
1) Prepare all journal entries related to Secure Company's foreign currency speculation from December 1,
20X8, through March 1, 20X9, assuming the fiscal year ends on December 31, 20X8.
2) Did the company gain or lose on its purchase of the forward contract?

60. On December 1, 20X8, Denizen Corporation entered into a 120-day forward contract to purchase 200,000
Canadian dollars (C$). Denizen's fiscal year ends on December 31. The forward contract was to hedge
a firm commitment agreement made on December 1, 20X8, to purchase electronic goods on January
30, with payment due on March 31, 20X8. The derivative is designated as a fair value hedge. The direct
exchange rates follow:

Required:
Prepare all journal entries for Denizen Corporation.
61. On December 1, 20X8, Denizen Corporation entered into a 120-day forward contract to purchase 200,000
Canadian dollars (C$). Denizen's fiscal year ends on December 31. The forward contract was to hedge
an anticipated purchase of electronic goods on January 30, 20X9. The purchase took place on January 30,
with payment due on March 31, 20X9. The derivative is designated as a cash flow hedge. The company
uses the forward exchange rate to measure hedge effectiveness. The direct exchange rates follow:

Required:
Prepare all journal entries for Denizen Corporation.
62. On December 1, 20X8, Merry Corporation acquired 100 shares of Venus Corporation at a cost of $60 per
share. Merry classifies them as available-for-sale securities. On this same date, it decides to hedge against
a possible decline in the value of the securities by purchasing, at a cost of $400, an at-the-money put
option to sell the 100 shares at $60 per share. The option expires on February 20, 20X9. Selected
information concerning the fair values of the investment and the options follow:

Assume that Merry exercises the put option and sells Venus shares on February 20, 20X9.
Required:
1) Prepare the entries required on December 1, 20X8, to record the purchase of the Venus stock and the
put options.
2) Prepare the entries required on December 31, 20X8, to record the change in intrinsic value and time
value of the options, as well as the revaluation of the available-for-sale securities.
3) Prepare the entries required on February 20, 20X8, to record the exercise of the put option and the sale
of the securities at that date.