# chap009 - Multiple Choice Questions 1 Pigskin Co a U.S...

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Multiple Choice Questions 1. Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2004. Pigskin received payment of 35,000 British pounds on May 8, 2004. The exchange rate was \$1 = £0.65 on April 8 and \$1 = £0.70 on May 8. What amount of foreign exchange gain or loss should be recognized? ( round to the nearest dollar ) A) \$10,500 loss B) \$10,500 gain C) \$1,750 loss D) \$1,750 gain E) No gain or loss should be recognized. Answer: D Difficulty: Medium Use the following to answer questions 2-4: Norton Co., a U.S. corporation, sold inventory on December 1, 2004, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: Dec. 1 Spot rate: \$1 = £0.58 Sixty day forward rate: \$1 = £0.59 31 Spot rate: \$1 = £0.55 Jan. 30 Spot rate: \$1 = £0.60 2. For what amount should Sales be credited on December 1? A) \$ 5,500 B) \$16,949 C) \$18,182 D) \$17,241 E) \$16,667 Answer: D Difficulty: Medium 3. What amount of foreign exchange gain or loss should be recorded on December 31? A) \$292 gain B) \$292 loss C) \$–0– D) \$941 loss E) \$941 gain Answer: E Difficulty: Medium

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4. What amount of foreign exchange gain or loss should be recorded on January 30? A) \$1,515 gain B) \$1,515 loss C) \$–0– D) \$1,233 loss E) \$1,233 gain Answer: B Difficulty: Medium Use the following to answer questions 5-7: Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows: May 8 Spot rate \$1.25 = 1 FC 30-day Forward rate \$1.22 = 1 FC May 31 Spot rate \$1.26 = 1 FC June 7 Spot rate \$1.20 = 1 FC 5. For what amount should Brisco's Accounts Payable be credited on May 8? A) \$2,500,000 B) \$2,440,000 C) \$1,600,000 D) \$1,639,344 E) \$1,666,667 Answer: A Difficulty: Medium 6. How much Foreign Exchange Gain or Loss should Brisco record on May 31? A) \$2,520,000 gain B) \$ 20,000 gain C) \$ 20,000 loss D) \$ 80,000 gain E) \$ 80,000 loss Answer: C Difficulty: Medium
7. How much US \$ will it cost Brisco to finally pay the payable on June 7? A) \$1,666,667 B) \$2,440,000 C) \$2,520,000 D) \$2,500,000 E) \$2,400,000 Answer: E Difficulty: Medium Use the following to answer questions 8-9: Tealton Co. is a U.S. corporation. It purchased inventory on November 1, 2003, with payment of 500,000 yen to be made as soon as Tealton had sold the inventory. The inventory was sold on January 28, 2004, and payment was made on February 1. The exchange rates for yen were as follows: Nov. 1, 2003 \$1 = ¥200 Dec. 31, 2003 \$1 = ¥208 Jan. 28, 2004 \$1 = ¥198 Feb. 1, 2004 \$1 = ¥196 8. What was the effect of exchange rate fluctuations on income for 2003? A) \$625 increase (gain)

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## This note was uploaded on 02/15/2012 for the course ACCOUNTING 101 taught by Professor Mrhot during the Spring '11 term at Clarion.

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chap009 - Multiple Choice Questions 1 Pigskin Co a U.S...

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