Batohinog, Tricia Jean B. 1: Name Block: Write Your Final Answers in The Table Provided. Indicate If Gain or Loss
Batohinog, Tricia Jean B. 1: Name Block: Write Your Final Answers in The Table Provided. Indicate If Gain or Loss
Batohinog, Tricia Jean B. 1: Name Block: Write Your Final Answers in The Table Provided. Indicate If Gain or Loss
Advance Accounting II
Midterms Examination
Write your final answers in the table provided. Indicate if gain or loss.
1 D
2 A
3 D
4 A
5 C
6 D
7 B
8 C
9 D
10 C
11 C (40,000) LIABILITY
12 A (60,000) LOSS
13 A 20,000 GAIN
14 C
15 A 100,000 INCREASE
16 C (80,000) LIABILITY
17 D 200,000 GAIN
18 C 504,000
19 A 4840,000
20 D 666,750
21 A 787,500
22 B 7,000
23 A (1,750)
24 D (1,750)
25 A 3,948,750
26 B (1,023,750)
27 D 74,000
28 C (55,500)
29 C 10,275 LOSS
30 A 7,575 LOSS
NEW ERA UNIVERSITY
Advance Accounting II
Midterms Examination
1. When a foreign currency transaction occurred in one period and settled in another period,
a. the exchange differences between the transaction date and the date of settlement is recognized in the period of
settlement.
b. exchange differences between the transaction date and the end of reporting period is recognized in the period
of transaction.
c. exchange differences between the end of the previous reporting period and the date of settlement is
recognized in the period of settlement.
d. b and c
2. When a foreign currency transaction occurred and settled in the same period,
a. all the exchange difference is recognized in that period.
b. all the exchange difference is recognized in the next period.
c. all the exchange difference is recognized in the previous period.
d. none of these
4. It is an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the activities of which are
based or conducted in a country or currency other than those of the reporting entity.
a. foreign operation c. foreigner
b. foreign transaction d. alien operation
5. When translating the financial statements of a foreign operation, which of the following translation procedures is
inappropriate
a. Assets, liabilities, and equity, including any goodwill and FVAs, are translated at the closing rate.
b. Income and expenses are translated at the spot exchange rates. For practical reasons, income and expenses may
be translated at the average rate.
c. All resulting exchange differences shall be recognized in profit or loss.
d. All resulting exchange differences shall be recognized in other comprehensive income.
6. When translating the financial statements of a foreign operation, the resulting exchange differences after translating
all assets, liabilities, equity, income and expenses consists of all of the following, except
a. Translation of opening net assets using opening and closing rates.
b. Translation of goodwill using opening and closing rates.
c. Translation of profit using average and closing rates.
d. Translation of ending net assets using opening and closing rates.
11. How much is the derivative asset (liability) as of December 31, 20x1?
a. 0 b. (34,668) c. (40,000) d. 40,000
12. How much is the total net effect of the derivative on the 20x1 and 20x2 profit or loss? Gain (loss)
a. (60,000) b. 60,000 c. (40,000) d. 40,000
13. How much is the net settlement on February 1, 20x2? – Receipt (payment)
a. 20,000 b. (20,000) c. (60,000) d. 60,000
To protect the fair value of its inventory against a potential decline in prices, ABC Co. enters into a “short” futures
contract on December 1, 20x1 to sell 400 troy ounces of gold at ₱12,100 per troy ounce on February 1, 20x2 (the
expected date of sale of the inventory). The futures contract requires an initial margin deposit of ₱384,000.
We will assume that the fair values shown below already reflect costs to sell.
Dec. 1, 20x1 Dec. 31, 20x1 Feb. 1, 20x2
Spot price 12,000 12,250 11,800
Futures price 12,100 12,300 11,800
15. How much is the adjustment to the inventory account on December 31, 20x1? Increase (decrease)
a. 100,000 b. (100,000) c. 80,000 d. 0
16. How much is the derivative asset (liability) as of December 31, 20x1?
a. (100,000) b. 100,000 c. (80,000) d. 80,000
17. How much is the gain (loss) on the futures contract on February 1, 20x2?
a. 0 b. (80,000) c. (200,000) d. 200,000
18. How much is the net settlement on February 1, 20x2? – Receipt (payment)
a. 120,000 b. (120,000) c. 504,000 d. 504,000
19. How much is the total net cash receipt (payment) on the two contracts?
a. 4,840,000 b. (4,840,000) c. (504,000) d. 504,000
Use the following information for the next five questions:
The unadjusted accounts of PRIMER Corporation of the Philippines at December 31, 2018 that relate to its forward
contracts are summarized as follows:
Forward contract payable to BPI in Philippine pesos amounting to ₱133,000 for the Changi Corporation hedge
Forward contract receivable from Metro Bank in Philippine pesos amounting to ₱294,000 intended to hedge a
foreign currency commitment to KBS Co. of Korea due in 90-days from December 1, 2018.
Accounts payable to Changi Corporation of Singapore amounting to ₱127,750 billing was for 10,000,000
Singapore dollars’ worth of merchandise
Forward contract receivable from BDO in Thailand Baht amounting to ₱227,500for speculation to purchase
200,000 Baht in 90-days from December 1, 2018
Forward contract payable to Metro Bank in Korean Won amounting to ₱294,000 intended to hedge a 100,000
Won sales commitment with KBS Co. of Korea
Froward contract receivable from BPI in Singapore dollars amounting to ₱133,000 which is to hedge payable to
Changi Corporation for 120-days from November 2, 2018
Forward contract payable to BDO in Philippine pesos amounting to ₱227,500 for speculation in Thailand Baht
Forward rates to purchase Thailand Baht and Singapore dollars and sell Korean Won:
20. Based on all foregoing transactions on December 31, 2018, how much is the total current assets of Primer?
a. ₱663,250 b. ₱528,500 c. ₱665,000 d. ₱666,750
21. Based on all foregoing transactions on December 31, 2018, how much is the total current liabilities of Primer?
a. ₱787,500 b. ₱656,250 c. ₱560,000 d. ₱918,750
22. In Primer’s income statement for the year ended December 31, 2018, what amount of FOREX gain (loss) should be
reported from the forward contract for speculation?
a. ₱1,750 b. ₱7,000 c. ₱(1,750) d. ₱(7,000)
23. In Primer’s income statement for the year ended December 31, 2018, what amount of FOREX gain (loss) should be
reported from the change in the fair value of the underlying sales commitment?
a. ₱(1,750) b. ₱7,000 c. ₱(7,000) d. ₱1,750
24. In Primer’s income statement for the year ended December 31, 2018, what amount of FOREX gain (loss) should be
reported from the hedge item in an exposed liability position?
a. ₱(3,500) b. ₱(2,500) c. ₱(7,000) d. ₱(1,750)
The agreement is to exchange currencies of different countries on a specified future date at the specified rate. Option
price is ₱20.60. The following direct exchange rates were as follows:
Transaction 1. On October 25, 2017, Compact Company ordered merchandise worth $975,000 from a Company in
Sydney, payable on February 28, 2018 in Australian $. It was shipped on November 2, 2017. To hedge this foreign
currency exposure, Compact Company bought $975,000 on December 1, 2017 for delivery on January 30, 2018 under a
forward contract with BDO.
25. What amount will affect profit or loss regarding the derivative asset on its settlement date in 2018?
a. ₱3,948,750 b. ₱97,500 c. ₱1,755,000 d. ₱5,958,750
26. As a result of all foregoing transactions, what amount will affect current earnings on the financial statement date in
2017?
a. ₱(2,778,750) b. ₱(1,023,750) c. ₱1,775,000 d. ₱292,500
Transaction 2. On October 2, 2017, Flash Company received an order of merchandise from a Company in Brisbane. It
was invoiced and shipped on October 25, 2017 to the customer. The price of $370,000 is to be collected in Australian
dollars on February 28, 2018. To hedge this foreign currency exposure, Flash Company sold $370,000 for delivery on
March 31, 2018 under a forward contract with BPI, which was entered into by Flash Company on November 2, 2018.
27. What amount will affect profit or loss regarding the hedging instrument on the financial statement date in 2017?
a. ₱(166,500) b. ₱92,500 c. ₱166,500 d. ₱74,000
28. As a result of all foregoing transactions, what amount will affect current earnings in 2018?
a. ₱(92,500) b. ₱(166,500) c. ₱(55,500) d. ₱(37,000)
On December 1, 2022, Caloocan Corporation acquired 6,900 shares of Eastwood Company at a cost of ₱42 per share.
Caloocan classifies them as available-for-sale securities. On this same date, Caloocan decides to hedge against a possible
decline in the value of the securities by purchasing, at a cost of ₱17,850, an at-the-money put option to sell the 6,900
shares. The option expires on April 1, 2023. The fair values of the investment and the options follow:
29. The gain/loss on option contract due to change in time value on December 31, 2022 if split accounting is used in the
assessment of hedge effectiveness should be:
a. ₱15,525 gain b. ₱10,275 gain c. ₱10,275 loss d. ₱15,525 loss
30. The 2023 net gain/loss in the hedging activity amounted to:
a. ₱7,575 loss b. ₱23,475 gain c. ₱7,575 gain d. ₱23,475 loss
ITEM 10-13
FUTURES CONTRACT
“TO PURCHASE”
ITEMS 14-19
FUTURES CONTRACT
HEDGING FAIR VALUE
19.
4,720,000 + (384,000) + 504,000 = 4,840,000
20.
Current assets BAHT = 234,500
Current assets SINGAPORE = 134,750
Current assets WON = 295,750
21.
Current liabilities BAHT = 227,500
Current liabilities SINGAPORE = 262,500
Current liabilities WON = 295,750