Financial 7 PassMaster Questions - Becker CPA Review,...

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Becker CPA Review, PassMaster Questions Lecture: Financial 7 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. CPA PassMaster Questions–Financial 7 Export Date: 10/30/08
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Becker CPA Review, PassMaster Questions Lecture: Financial 7 2 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Financial Instruments CPA-00928 Type1 M/C A-D Corr Ans: A PM#1 F 7-01 1. CPA-00928 FARE R03 #4 Page 5 On November 2, 2001, Platt Co. entered into a 90-day futures contract to purchase 50,000 Swiss francs when the contract quote was $.70. The purchase was for speculation in price movement. The following exchange rates existed during the contract period: 30-day futures Spot rate November 2, 2001 $.62 $.63 December 31, 2001 .65 .64 January 30, 2002 .65 .68 What amount should Platt report as foreign currency exchange loss in its income statement for the year ended December 31, 2001? a. $2,500 b. $3,000 c. $3,500 d. $4,000 CPA-00928 Explanation Choice "a" is correct. Any gain or loss on futures contracts not designated as a hedge is recognized in current income. The loss as of December 31, 2001 is: Contract rate $.70 30-day futures rate on 12/31/01 .65 .05 × 50,000 SF = $2,500 loss The December 31, 2001 30-day futures rate is used since, as of December 31, 2001, 30 days remain in the contract period. If the futures contract were purchased at year-end instead of on November 2, 2001, 5¢ per Swiss franc would have been saved. It would have only cost us 65¢ per Swiss franc instead of our contract rate of 70¢; therefore, 5¢ per Swiss franc was recorded as a loss. CPA-00930 Type1 M/C A-D Corr Ans: D PM#3 F 7-01 2. CPA-00930 FARE C98 #1 Page 3 Fair value disclosure of financial instruments may be made in the: Body of Footnotes to financial statements financial statements a. No No b. No Yes c. Yes No d. Yes Yes CPA-00930 Explanation Choice "d" is correct. The fair value of financial instruments may be disclosed in either the body of the financial statements or in the footnotes. If disclosed in the footnotes, one footnote must have a summary table showing the fair values and related carrying values. CPA-00931 Type1 M/C A-D Corr Ans: B PM#4 F 7-01 3. CPA-00931 FARE C98 #2 Page 3 Disclosures about the following kinds of risks are required for most financial instruments. Concentration of Market credit risk risk
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Becker CPA Review, PassMaster Questions Lecture: Financial 7 3 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. a. Yes Yes b. Yes No c. No Yes d. No No CPA-00931 Explanation Choice "b" is correct. Concentration of credit risk - the risk that the other party to the instrument will not perform - must be disclosed. Disclosure of market risk - the risk of loss from changes in market prices - is encouraged, but not required. CPA-00933 Type1 M/C A-D Corr Ans: B PM#5 F 7-01 4. CPA-00933 FARE C98 #3 Page 3 Which of the following assets are financial instruments? Investment in bonds Prepaid expenses a. Yes Yes b. Yes No c. No Yes d. No No CPA-00933 Explanation Choice "b" is correct. An investment in bonds represents a contract with the right to receive cash, usually in the form of both interest and principal, and an obligation to the issuing party to pay cash. Prepaid expenses do not represent a right to receive cash or an ownership interest.
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This note was uploaded on 09/25/2011 for the course ACCOUNTING AC555ON taught by Professor Abekele during the Spring '10 term at Keller Graduate School of Management.

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Financial 7 PassMaster Questions - Becker CPA Review,...

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