PROBLEM 1

On October 1, 2017, KAZZIE Company ordered some equipment from a supplier for 200,000 baht. Delivery and payment is to occur on November 30, 2017. The spot rates on October 1 and November 30 are P1.50 and P1.30.

1. If the company does not hedge the commitment, at what amount is the equipment recorded on the books on November 30, 2017?

a. P300,000 c. P200,000

b. P260,000 d. P0

2. If the company acquires on October 1, 2017 a forward contract to hedge any unfavorable changes in fair value of the equipment, at what amount is the equipment recorded on the books on November 30, 2017? The October 1, 2017 forward rate for November 30 settlement is P1.35.

a. P300,000 c. P260,000

b. P270,000 d. P200,000

PROBLEM 2

KEIZEL Company purchased chocolates from Thailand for 200,000 baht on December 1, 2017. Payment is due on January 30, 2018. On December 1, 2017, the company also entered into a 60-day forward contract to purchase 200,000 baht. The forward contract is not designated as a hedge. The rates were as follows:

Spot rate Forward rate

December 1, 2017 P0.89 P0.90 (60 days)

December 31, 2017 P0.91 P0.93 (30 days)

January 30, 2018 P0.92

3. The entries on December 31, 2017, include a:

a. Credit to Foreign Currency Payable to Exchange Broker, P4,000

b. Debit to Foreign Currency Receivable from Exchange Broker, P6,000

c. Debit to Foreign Currency Receivable from Exchange Broker, P186,000

d. Debit to Foreign Currency Transaction Gain, P4,000

4. The entries on January 30, 2018, include a:

a. Debit to Pesos Payable to Exchange Broker, P180,000

b. Credit to Cash, P184,000

c. Credit to Premium on Forward Contract, P4,000

d. Credit to Foreign Currency Receivable from Exchange Broker, P180,000

5. The entries on January 30, 2018, include a:

a. Credit to Foreign Currency Units (Baht), P184,000

b. Credit to Cash, P180,000

c. Debit to Foreign Currency Transaction Loss, P4,000

d. Debit to Pesos Payable to Exchange Broker, P184,000

6. The entries on January 30, 2018, include a:

a. Debit to Pesos Payable to Exchange Broker, P184,000

b. Credit to Foreign Currency Transaction Gain, P4,000

c. Credit to Foreign Currency Receivable from Exchange Broker, P180,000

d. Debit to Foreign Currency Units (Baht), P184,000