INTERNATIONAL ACCOUNTING CH 6 HW

INTERNATIONAL - T Anderson International Accounting Chapter 6 Foreign Currency Transactions Hedging Foreign Exchange Risk 1 What is the concept

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T Anderson International Accounting 1. What is the concept underlying the two-transaction perspective to accounting for foreign currency transactions ? Sale is based on current exchange rate If exchange rate changes, collection is for different amount Difference is considered foreign exchange gain or loss Concepts are identical for purchase transaction 2. A company makes an export sale denominated in a foreign currency & allows the customer one month to pay. Under the two-transaction perspective, accrual approach, how does the company account for fluctuations in the exchange rate for the foreign currency ? Record the US dollar value of the sale at the date the sale occurs. Any differences between the US dollars that could have been received at the date of the sale and the number of US dollars actually received at the date of payment due to fluctuations in the exchange rate is a result of the decision to extend foreign currency credit to the customer. This difference is treated as a Foreign Exchange gain or loss that is reported separately from Sales in the Income Statement. 3. What factors create a foreign exchange gain on a foreign currency transaction? What factors create a foreign exchange loss? Foreign exchange gains and losses are created by two factors: having foreign currency exposures (foreign currency receivables and payables) and changes in exchange rates. Appreciation of the foreign currency will generate foreign exchange gains on receivables and foreign exchange losses on payables. Depreciation of the foreign currency will generate foreign exchange losses on receivables and foreign exchange gains on payables. 4.
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This note was uploaded on 02/09/2011 for the course ACCT 547 taught by Professor Sc during the Fall '11 term at Campbell.

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INTERNATIONAL - T Anderson International Accounting Chapter 6 Foreign Currency Transactions Hedging Foreign Exchange Risk 1 What is the concept

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