Question
5. On May 1, 2002, the City Museum purchases an original Picasso drawing for 100,000 Euro, payable in 30 days. On May 1 the spot
5. On May 1, 2002, the City Museum purchases an original Picasso drawing for 100,000 Euro, payable in 30 days. On May 1 the spot rate is Euro 6.2315 and the 30 day forward rate is Euro 6.1825 per dollar. On May 30, when the bill is paid, the spot rate is Euro 6.2500=$1. The cost of the drawing should be recorded at: a. $16,000 b. $16,048 c. $16,175 d. $623,150 6. On July 1, 2005, Sweet Tooth Company purchases 1,000 pounds of Swiss chocolate for 50,000 Swiss francs, payable in 60 days. On July 1, a Swiss franc is worth $.6498, by August 30, the day of payment, one Swiss franc is worth $.6256. The 60-day forward rate on July 1 is SFr 1=$.6612. Sweet Tooth should record the cost of the chocolate at: a. $31,280 b. $31,885 c. $32,490 d. $33,060 7. Ball Corp. had the following foreign currency transactions during 2009: Merchandise was purchased from a foreign supplier on January 20, 2009, for the U.S. dollar equivalent of $90,000. The invoice was paid on March 20, 2009 at the U.S. dollar equivalent of $96,000 On July 1, 2009, Ball borrowed the U.S. dollar equivalent of $500,000, evidenced by a note that was payable in the lenders local currency on July 1, 2011, On December 31, 2009, the U.S. dollar equivalents of the principal amount and accrued interest were $520,000 and $26,000, respectively. Interest on the note is 10 percent per annum. In Balls 2009 income statement, what amount should be included as foreign exchange loss? a. $0 b. $6,000 c. $21,000 d. $27,000 8. Lindy, a U.S. corporation, bought inventory items from a supplier in Germany on November 5, 2007 for 100,000 Euro when the spot rate was $.4295. At Lindys December 31, 2007 year-end, the spot rate was $.4245. On January 15, 2008, Lindy bought 100,000 Euro at the spot rate of $.4345 and paid the invoice. How much should Lindy report in its income statements for 2007 and 2008 as foreign exchange gain or loss? 2007 2008 a. $500 ($1,000) b. $0 ($500) c. ($500) $0 d. ($1,000) $500 9. On September 1, 2007, 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, 2007, and billed the customer for 300,000 LCU when the U.S. dollar equivalent was $100,000. Bain received the customers remittance in full on November 16, 2007, and sold the 300,000 LCU for $105,000. In its income statement for the year ended December 31, 2007, Bian should report a foreign exchange gain of: a. $0 b. $4,000 c. $5,000 d. $9000
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