5) 5) On December 15, a U.S. company bought inventory from a European supplier. Payment is required in euros in 30 days. What exchange rate should be used to Value the payable for this transaction at year-end? A. Exchange rate at purchase date B. Weighted average exchange rate for the year C. Exchange rate at settlement date D. Exchange rate at year-end 6) On September 1, Year 1, Cano & Co., a U.S. corporation, sold merchandise to a 6) foreign firm for 250,000 pesos. Terms of the sale require payment in pesos on February 1, Year 2. On September 1, Year 1, the spot exchange rate was $0.20 per peso. At December 31, Year 1, Cano's year end, the spot rate was $0.19, but the rate increased to $0.22 by February 1, Year 2 when payment was received. How much should Cano report as foreign exchange gain or loss in its Year 2 income statement? A. $7,500 gain B. $2,500 loss C. $0 D. $5,000 gain 7) 7) Toigo Copurchased merchandise from a vendor in England on November 20 for 500,000 British pounds. Payment was due in British pounds on January 20. The spot rates to purchase one pound were as follows: November 20 $1.25 December 31 1.20 January 20 1 .17 How should the foreign currency transaction gain be reported on Toigo's financial statements at December 31? A. A gain of $40,000 in the income statement. B. Again of $25,000 as a separate component of stockholders' equity. C. Again of $40,000 as a separate component of stockholders' equity. D. A gain of $25,000 in the income statement. 8) Which of the following is an example of hedging? A. A company that makes and sells boats invests in a foreign company that makes and sells automobiles. A company with a receivable denominated in foreign currency units offers to sell an equal amount of that foreign currency at a set price. C. A company with a payable denominated in foreign currency units offers to buy an equal amount of that foreign currency at a set price. D. A company with a receivable denominated in foreign currency units borrows an equivalent amount of currency to the receivable but denominated in a third unrelated currency. 9) At what time can you NOT purchase a hedge? A. At the purchase order date. B. At the exchange date. C. In between the purchase order date and the exchange date. D. After the contract is completed. 10) The following exchange rates between the U.S. dollar and Japanese yen are given below. 10) Dec 1, 2018 Dec 31, 2018 Jan 31, 2019 $1= 154 yen $1 = 139 ven $1 145 yen Based on the preceding information, which of the following is true of the dollar's movement vis -vis Japanese yen during the given periods? Dec 1-31 A. Dollar strengthened B. Dollar strengthened C. Dollar weakened D. Dollar weakened Jan 1-31 Dollar strengthened Dollar weakened Dollar strengthened Dollar weakened 11) On December 10, 2018, New York based Empire Corporation purchased goods from 11) a Spanish firm for 100,000 euros, to be paid on January 10, 2019. The transaction is denominated in euros. Empire's fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are: December 10, 2018 December 31, 2018 January 10, 2019 1 euro $1.03 1 euro = $1.02 | 1 euro $1.05 Based on the preceding information, what journal entry would Empire make on December 31, 2019 to revalue foreign currency payable to equivalent U.S. dollar value. 1.000 1.000 1.000 A. Accounts Payable Foreign Currency Transaction Gain B. Foreign Currency Transaction Loss Accounts Payable Transaction Loss C Accounts Payable Foreign Currency Transaction Gain D. Foreign Currency Transaction Loss Accounts Payable Transaction Loss 3.000 3.000 3,000 3,000