ACCOUNTING FOR FOREIGN CURRENCY TRANSACTION

1. On Sept. 1, 2009, Bam Corp. received an order for equipment from a foreign customer for 300,000 local currency units
(LCU) when the peso equivalent was P 96,000. Bain shipped the equipment on October 15, 2009 and billed the customer for
300,000 LCU when the peso equivalent was P 100,000. Bain received the customers remittance in full on Nov. 16, 2009, and
sold the 300,000 LCU for P 105,000. In its income statement for the year ended Dec. 31, 2009, Bain should report a foreign
exchange transaction gain of
a. 0 b. 4,000 c. 5,000 d. 9,000

2. On Sept. 1, 2009, Cano & Co. sold merchandise to a foreign firm for 250,000 francs. Terms of the sale require payment in
francs on Feb. 1, 2010. On Sept. 1, 2009, the spot exchange rate was P1.20 per franc. At Dec. 31, 2009, Canos year-end, the spot
rate was P1.19, but the rate increased to P1.22 by Feb. 1, 2010, when payment was received. How much should Cano report as
foreign exchange transaction gain or loss in its 2010 income statement?
a. 0 b. (2,500) c. 5,000 d. 7,500

3. Cindy Corp. bought inventory items from a foreign supplier in Japan on Nov. 15, 2009 for 100,000 yen, when the spot rate
was P0.4295. At Cindys December 31, 2009, year end, the spot rate was P0.4245. On Jan. 15, 2010, Cindy bought 100,000 yen
at the spot rate of P0.4345 and paid the invoice. How much should Cindy report in its income statements for 2009 and 2010
as FOREX gain or loss?
a. 500; (1,000) b. 0; (500) c. (500); 0 d. (1,000); 500

4. Hyzone Holdings Inc. is a parent company of a group of companies, but also does its own trading. It bought a fixed asset
for $36,000 on Nov. 1, 2009 when the exchange rate was $1.00 P 23.00. At Dec. 31, 2009, the companys year-end, the
supplier of the fixed asset has not been paid and the exchange rate at that time was $1.00 P 25,000. The company has not
taken out forward exchange contract for this payment as a hedge against adverse exchange rate movements. On the balance
sheet of Hyzone Holdings Inc., what will be the values for the fixed asset and the creditor who was unpaid?
a. 900,000; 900,000 b. 900,000; 828,000 c. 828,000; 828,000 d. 828,000; 900,000

5. On July 1, 2009, Maltase Finance, Inc., a Filipino company lent P 200,000 to a US supplier, evidenced by an interest bearing
note due on July 1, 2010. The note is equivalent to $4,000 on the loan date. The note principal was appropriately included at P
210,000 in the receivables section of Maltases Dec. 31, 2009 balance sheet. The note principal was repaid to Maltase Finance,
Inc on July 1, 2010, due date when the exchange rate was P56.50 $1. In its income statement for the year ended Dec. 31, 2010,
what amount should Maltase Finance include as a foreign exchange gain or loss?
a. 0 b. (16,000) c. 16,000 d. (35,000)

6. Manila Pit Shop sells goods to Action Hobbies of Hong Kong for HK$30,000. The exchange rate at this time is P7.60 for
1HK$. Action Hobbies pays 20 days later when the prevailing exchange rate is P7.80 for 1HK$. Because of exchange rate
fluctuation, how much do Manila Pit Shop and Action Hobbies of Hong Kong stand to gain or lose if the transaction is
denominated in Hong Kong dollar?
a. 6,000 gain; 0 b. 6,000 loss; 0 c. 0; 6,000 loss d. 0; 6,000 gain

7. On Nov. 15, 2009, Hobbies Inc. of Manila, ordered merchandise FOB shipping point from Niponggo Company of Japan for
500,000 yen. The merchandise was shipped and invoiced to Hobbies on Dec. 10, 2009. Hobbies paid the invoice on January 10,
2010. The exchange rates for yens on the respective dates are as follows:
Nov. 15, 2009 P0.25 Dec. 31, 2009 P0.2375
Dec. 10, 2009 P0.2475 Jan. 10, 2010 P0.23
In Hobbies Dec. 31, 2009 income statement, the FOREX gain (loss) to be reported is:
a. 6,250 b. (6,250) c. 5,000 d. (5,000)

8. Makati Corp. imports merchandise from Abu Dhabi and exports its own products to other countries. The unadjusted
accounts denominated in Dirham at Dec. 31, 2009 are as follows:
Accounts receivable from the sale of merchandise on Dec. 16 to
Vieta Co. Billing is for 150,000 Dirham and due Jan. 15, 2010 P 103,500
Accounts payable to Abuds Co. for merchandise received on Dec. 2 and
Payable on Jan. 30, 2010, billing is for 275,000 dirham P 195,250
Exchange rates on selected dates are as follows:
Dec. 31, 2009 - P0.68 Jan. 15, 2010 - P0.675 Jan. 30, 2010 - P0.685
What is the net forex gain or loss from the two transactions to reported in Makatis income statement for 2009?
a. 1,500 loss b. 8,250 gain c. 6,750 gain d. 6,750 loss

9. Same problem above. What is the net forex gain or loss from the settlement of the two transactions to be reported in
Makatis 2010 income statement?
a. 2,125 loss b. 2,125 gain c. 2,125 gain d. 2,075 loss

10. The accounts of Palawan International, a Philippine company, show P 813,000 accounts receivable and P 389,000 accounts
payable at Dec. 31, 2010 before adjusting entries are made. An analysis of the balances reveals the following:
Accounts receivable
o Receivable denominated in Philippine peso P 285,000
o Receivable denominated in 200,000 Japanese yen 118,000
o Receivable denominated in 250,000 Thailand baht 410,000
Accounts payable
o Payable denominated in Philippine peso P 68,500
o Payable denominated in 10,000 Hong Kong dollar 76,000
o Payable denominated in 150,000 Thailand baht 244,000
Current exchange rates on Dec. 31, 2010 are:
Japanese Yen P 0.66 Thailand Baht P1.65 Hong Kong dollar P7.00
What is the net exchange gain or loss that should be reflected in Palawans income statement for 2010 after the year end
adjustment?
a. 19,000 gain b. 19,500 loss c. 16,500 loss d. 16,500 gain

11. Same problem above. What is the balance of accounts receivable and payable that should be reported in Palawans Dec. 31,
2010 balance sheet?
a. 829,500; 386,000 b. 386,000; 829,500 c. 813,000; 389,000 d. 389,000; 813,000

12. On Dec. 12, 2010, Boracay Co. entered into two forward exchange contracts, each to purchase 100,000 HK dollars in 90
days. The relevant exchange rate are as follows:
Spot rate Forward rate (for Mar. 12, 2010)
December 12, 2010
December 31, 2010
P 8.80
9.80
P 9.00
9.30
Boracay entered into the first forward contract for speculation. At Dec. 31, 2010, what amount of foreign exchange gain (loss)
should Boracay in the income statement from this forward contract?
a. 0 b. 30,000 c. (30,000) d. 100,000

13. Same problem above. Boracay entered into the second forward contract to hedge a commitment to purchase machinery
being manufactured to Boracays specification. At Dec. 31, 2010, what amount of net gain or loss on foreign currency
transactions should Boracay include in income from this forward contract?
a. 0 b. 30,000 c. 50,000 d. 100,000

Items 14 15 are based on the following information. On Dec. 31, 2010, Davao Import, Inc. entered into a forward exchange
contract to purchase 100,000 foreign currencies in 90-days to hedge a purchase of inventory in Nov. 2010 payable in March
2011. The relevant exchange rates are as follows:
Spot rate Forward rate (for Mar. 12, 2011)
November 30, 2010
December 12, 2010
December 31, 2010
P 8.70
8.80
9.20
P 8.90
9.00
9.30
14. At Dec. 31, 2010, what amount of foreign exchange gain (loss) from this forward contract should be reported in the income
statement of Davao?
a. (30,000) b. 30,000 c. 40,000d. (40,000)

15. At Dec. 31, 2010, what amount of forex gain or loss should be reported in income statement from the adjustment of the
accounts payable of 100,000 foreign currency?
a. 50,000 b. (50,000) c. 40,000d. (40,000)

16. On Oct. 17, 2009, Cebu Co. took delivery from a Thailand Co. an inventory costing 100,000 baht. Payment is due on Jan. 15,
2010. On the same date, Cebu entered into a forward contract to buy 100,000 baht on Jan. 15, 2011. The relevant exchange rates
are as follows:
10/17/2009 12/31/2009 1/15/2011
Spot rate
Forward rate
P 1.30
1.36
P 1.42
1.43
P 1.40
1.40
What amount of forex gain (loss) from this forward contract should Cebu include in net income for 2009?
a. (7,000) b. 7,000 c. 6,000 d. (6,000)

17. On April 4, 2009, Palate Export Inc. sold merchandise to Malaysia for 10,000 Ringgit. Payment is due on August 2, 2009,
Palate entered into a forward exchange contract to sell 10,000 Ringgit on August 2, 2009. Exchanges rates for Ringgit are:
4/4/2009 6/30/2009 8/2/2009
Spot rate
Forward rate
P 14.80
14.77
P 14.84
14.83
P 14.82
14.82
What amount of forex gain or loss from this forward contract should be included in Palates income statement on June 30,
2009?
a. (6,000) b. 6,000 c. (4,000) d. 4,000

18. The White Co. has the Philippine pesos as sits functional currency. On Oct. 16, 2009, White ordered some inventory from a
foreign supplier and agreed a purchase price of 160,000 LCU. The inventory was received on Nov. 15, 2009. At Dec. 31, 2009,
the inventory remained on hand and the trade payable balance for the inventory purchase remained outstanding. The supplier
was paid on Jan. 27, 2010 and the inventory was sold on Jan. 31, 2010. The following information about exchange rates is
available:
Oct. 6, 2009 P1.00 2.60 LCU Dec. 31, 2009 P1.00 2.40 LCU
Nov. 15, 2009 P1.00 2.50 LCU Jan. 27, 2010 P1.00 2.25 LCU
At what amount should the trade payable balance due to the supplier be presented in the statement of financial position at
Dec. 31, 2009?
a. 61,538 b. 64,000 c. 66,667 d. 71,111

19. Ball Corp. has the following foreign currency transactions during 2009:
Merchandise was purchased from a foreign supplier on Jan. 20, 2009, for the Philippine peso equivalent of P 90,000.
The invoice was paid on March 20, 2009, at the Philippine peso equivalent of P 96,000.
On July 1, 2009, Ball borrowed the Philippine peso equivalent of P 500,000 evidenced by a note that was payable in
the lenders local currency on July 1, 2010. On Dec. 31, 2009, the Philippine peso equivalents of the principal amount
and accrued interest were P 520,000 and P 26,000, respectively. Interest on the note is 10% per annum,
In Balls 2009 income statement, what amount should be included as forex transaction loss?
a. 0 b. 6,000 c. 21,000 d. 27,000

20. On Oct. 1, 2009, a local importer contracted to purchase foreign goods requiring payment of 100,000 German marks one
month after their receipt at the local importers business place. Title to the goods passed on the date of shipment on Dec. 1,
2009. On Dec. 31, 2009, the goods were still in transit. The following exchange rates were made available:
Oct. 1, 2009 P 22.00 Dec. 1, 2009 P 20.000 Dec. 31, 2009 P 26.00
How should the exchange fluctuation in 2009 be accounted by this local importer?
a. Transaction loss, 400,000; Translation adjustment, 0
b. Transaction gain, 600,000; Translation adjustment, 200,000
c. Transaction loss, 600,000; Translation adjustment, 200,000
d. Transaction loss, 600,000; Translation adjustment, 0

21. A wholly owned subsidiary of Ward, Inc. has certain expense accounts for the year ended Dec. 31, 2009 stated in LCU as
follows:
Depreciation 120,000 LCU
Provision for doubtful accounts 80,000 LCU
Rent 200,000 LCU
The exchange rates at various dates are as follows:
Peso equivalent of 1 LCU
December 31, 2009
Average for year ended Dec. 31, 2009
January 1, 2008
P 0.40
0.44
0.50
What total peso amount should be included in Wards 2009 income statement to reflect these expenses?
a. 160,000 b. 168,000 c. 176,000 d. 183,200

22. Certain balance sheet accounts of a foreign subsidiary of Rowan Inc. at Dec. 31, 2009, have been translated into Philippine
pesos as follows:
Current rate Historical rate
Note receivable, long term
Prepaid rent
Patent
P 240,000
85,000
150,000
P 200,000
80,000
170,000
What total amount should be included in Rowans Dec. 31, 2009, consolidated balance sheet?
a. 450,000 b. 455,000 c. 475,000 d. 495,000

23. Paris Co., a wholly owned subsidiary of Filipino Corp. is located in France. In 2009, Filipino Corp. borrowed French francs
as a partial hedge of its investment in Paris Co. On Dec. 31, 2009, in the preparation of consolidated financial statements,
Filipino Corp.s translation loss on its investment in the subsidiary amounted to P 500,000, while its exchange gain on the
borrowing amounted to P 300,000. What amount of gain or loss should Filipino Corp. report in consolidated income
statement and balance sheet?
a. (500,000); 300,000 b. 300,000; (500,000) c. 0; (200,000) d. (200,000); 0

24. The Italy branch of Manila Co. reports the following results of its operations for 2010 (in Euros):
Sales
Cost of sale
Purchases
Shipments from Manila
Inventory, end
Gross profit
Operating expenses
Net income


1,000
5,000
(800)
10,000



5,200
4,800
1,000
3,800
The relevant exchange rates for EUR for 2010 are:
Jan. 1 P 69.20 Dec. 31 P 69.95 Average rate during the year P 69.50
The only shipment from Manila during the year was determined to have a cost to home office of P 346,500. The ending
inventory was identified to have come from shipments from Manila. What is the translated net income of the branch in Italy?
a. 264,940 b. 264,100 c. 265,810 d. 262,960

25.On Dec. 31, 2010, a foreign subsidiary in Hong Kong submitted the following balance sheet stated in foreign currency:
Total assets HK$100,000
Total liabilities 20,000
Common stock 50,000
Retained earnings 30,000
The exchange rates are:
Current rate P 7.40
Historical rate P 7.10
Weighted average rate P 7.00
Assuming that the retained earnings of the subsidiary on Dec. 31, 2010 translated to Philippine peso is P 212,000. What amount
of Cumulative Translation Adjustment is to be reported in the Consolidated Balance sheet on Dec. 31, 2010?
a. 25,000 b. 2,000 c. 20,000 d. 22,000

26. On Dec. 31, 2010, a branch in Singapore submitted the following financial statement stated in Singaporean Dollar:
Monetary assets $20,000
Non-monetary assets 15,000
Monetary liabilities 18,000
Common stock 12,000
Retained earnings 5,000
Sales $27,000
Expenses (including depreciation $1,000) 25,000
Net income 2,000
Retained earnings, 1/1 3,000
Retained earnings, 12/31 5,000
Assuming the retained earnings on Jan. 1, 2010 of the Singaporean branch in Philippine pesos is P 128,100. What amount of
exchange difference is to be classified as equity on Dec. 31, 2010?
a. 22,900 b. 10,000 c. 12,000 d. 21,900