Question
3-On March 1, 2022, Eddie Ltd. issued a purchase order to Liu Inc. to acquire a crane for $400,000 SGD. On the same day, Eddie
3-On March 1, 2022, Eddie Ltd. issued a purchase order to Liu Inc. to acquire a crane for $400,000 SGD. On the same day, Eddie entered into a forward contract to receive $400,000 SGD on July 31, 2022. The crane was delivered on June 1, 2022, and payment was made July 31, 2022. Eddie has an April 30 year-end. The following information has been provided: (SCD = $X.XXX)
Date | Spot Rate | Forward rate to July 31, 2022 |
March 1, 2022 | .7686 | .7810 |
April 30, 2022 | .7702 | .7818 |
June 1, 2022 | .7940 | .7985 |
July 31, 2022 | .7995 | n/a |
Assume that the transaction qualifies as a cash flow hedge. On March 1, at what amount should the forward contract be reported?
a) $312,400
b) $317,600
c) $0
d) $319,800
4- What is the effect of fluctuations in exchange rates on accounts payable?
a) Deferred and amortized.
b) Recognized immediately in income.
c) Recognized if losses, deferred if gains.
d) Deferred to maturity.
5- Which of the following statements relating to a functional currency is FALSE?
a) Functional currency is determined on an entity by entity basis
b) Functional currency reflects the primary economic environment in which an entity operates.
c) The primary economic environment is the one in which an entity primarily generates and expends cash.
d) In order to determine what is considered to be a "functional currency," it is imperative that a "foreign currency" be first identified.
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