1. Foreign currency transactions not involving a hedge should be accounted for using

a.	the one-transaction method.
b.	the two-transaction method.
c.	a hybrid of the one- and two-transaction methods.
d.	either the one- or the two-transaction method (allowed by the FASB).

2. A U.S. firm has purchased, for 50,000 FCs, an electric generator from a foreign firm. The exchange rates were 1 FC = $0.80 on the delivery date and 1 FC = $0.76 when the payable was paid. What is the final recorded value of the generator if the two-transaction method is used?

a.	$40,000
b.	$38,000
c.	$42,000
d.	$50,000

3. A U.S. manufacturer has sold goods to a foreign firm for a sale price of 80,000 FC on 12/15/X1. The invoice is due 1/15/X2. The U.S. Firm fiscal year is 12/31/X1. Given the following exchange rates, what gain or loss would the U.S. firm record on 12/31?

12/15	1FC = $0.60 US Dollars
12/31	1FC = $0.65 US Dollars
1/15	1FC = $0.63 US Dollars

a.

loss of $4,000

b.

loss of $1,600

c.

gain of $2,400

d.

gain of $4,000

$76,500

PROBLEM A

On 5/1/17, Wall Company, a U.S. firm, purchased a piece of equipment from a foreign firm for 100,000 FCs. Payment for the equipment was to be made in FCs on 6/1/17. The spot rates on selected dates were as follows:

Date Buying Spot Rate Selling Spot Rate

5/1/17 1 FC = $0.405 1 FC = $0.42

6/1/17 1 FC = $0.43 1 FC = $0.44

a) Prepare Walls journal entries for the above transactions.

b) Prepare the 6/1/08 entries assuming instead that on 6/1/08 the buying spot rate is 1 FC = $0.39 and the selling spot rate is 1 FC = $0.41.

PROBLEM B

On November 1, 2008, a U.S. company sold merchandise (cost, $9,000) to a foreign firm for 100,000 FCs with payment to be made on January 31, 2009, in FCs. To hedge against fluctuations in exchange rates, the firm entered into a forward exchange contract on December 1, 2008 to sell 100,000 FCs on January 31, 2009. The U.S. firm has a December 31 year end for accounting purposes. The following exchange rates may apply:

Date	Spot Rate	Fwd Rate
11/1/08	$0.15
12/1/08	$0.155	$0.17
12/31/08	$0.16	$0.175
1/31/09	$0.165	$0.165

Discount rate = 10%

Required:

Make all the necessary journal entries for the U.S. firm relative to these events occurring between November 1, 2008, and January 31, 2009, inclusive.

PROBLEM C

Presented below are a number of items included in the financial statements of Wolfe Corporation, a foreign subsidiary of Garrett Company (a U.S. corporation). Garrets financial records are kept in FCs. Indicate how each of the items (1 17) would be computed when Wolfes financial statements are restated into U.S. dollars for purposes of consolidation. Use the code below:

C: FC amount multiplied by current exchange rate.

A: FC amount multiplied by average exchange rate.

H: FC amount multiplied by historical exchange rate(s)

N: None of the above (if you choose N, explain how the US $ amount is computed).

If functional currency is:

FC US $

1. ______ ______ Accounts Receivable.

2. ______ ______ Accounts Payable.

3. ______ ______ Advertising Expense.

4. ______ ______ Allowance for Doubtful Accounts.

5. ______ ______ Building.

6. ______ ______ Cash.

7. ______ ______ Common Stock.

8. ______ ______ Cost of Goods Sold.

9. ______ ______ Depreciation Expense.

10. ______ ______ Insurance Expense (expiration of Prepaid Insurance).

11. ______ ______ Interest Revenue.

12. ______ ______ Inventory (carried at lower of cost or market)

13. ______ ______ Land.

14. ______ ______ Notes Payable.

15. ______ ______ Patent Amortization Expense.

16. ______ ______ Retained Earnings.

17. ______ ______ Salaries Expense.

18. ______ ______ Unearned Rent.

19. ______ ______ Utilities Expense.