AFAR Problem.doc

# A 12000 b 9000 c 6000 d page 31 number 96 foreign

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A. \$12,000 B. \$ 9,000 C. \$ 6,000 D. \$ 0

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Page 31 Number 96 (Foreign currency transaction) Ball Company had the following foreign currency transactions during 2018: Merchandise was purchased from a foreign supplier on January 20, 2018, for the US dollar equivalent of \$90,000. The invoice was paid on March20, 2018, at the US dollar equivalent of \$96,000. On July 1, 2018, Ball borrowed the US dollar equivalent of \$500,000 evidenced by a note payable in the lender’s local currency on July 1, 2020. On December 31, 2018, the US dollar equivalents of the principal amount and accrued interest were \$520,000 and \$26,000, respectively. Interest on the note is 10% per annum. In Ball’s 2018 income statement, what amount should be included as foreign exchange transaction loss as part of net income? A. \$ 0 B. \$ 6,000 C. \$21,000 D. \$27,000 Number 97 (Foreign currency transaction) On November 30, 2018, Tyrola Publishing Company, located in Colorado, executed a contract with Ernest Blyton, an author from Canada, providing for payment of 10% royalties on Canadian sales of Blyton’s book. Payment is to be made in Canadian dollars each January 10 for the previous year’s sales. Canadian sales of the book for the year ended December 31, 2019, totaled \$50,000 Canadian. Tyrola paid Blyton his 2019 royalties on January 10, 2020. Tyrola’s 2019 financial statements were issued on February 1, 2020. Spot rates for Canadian dollars were as follows: November 30, 2018 \$.87 January 1, 2019 \$.88 December 31, 2019 \$.89 January 10, 2020 \$.90 How much should Tyrola accrue for royalties payable at December 31, 2019? A. \$4,350 B. \$4.425 C. \$4,450 D. \$4,500
Page 32 Numbers 98, 99, 100 and 101 (Foreign Currency Transaction) On November 1, 2020, an entity acquired on account goods from a foreign supplier at a cost of \$1,000. The accounts payable are paid on January 30, 2021. On December 1, 2020, an entity sold on account the said goods to a foreign customer at a selling price of \$1,500. The accounts receivable are collected on February 28, 2021. The entity is operating in Philippine economy wherein the functional currency is the Philippine Peso. The following direct exchange rates are provided: Buying spot rate Selling spot rate November 1, 2020 P40 P42 December 1, 2020 39 40 December 31, 2020 45 47 98. What is the sales revenue for 2020? A. 58,500 B. 60,000 C. 67,500 D. 72,000 99. What is the carrying amount of accounts receivable on December 31, 2020? A. 58,500 B. 60,000 C. 67,500 D. 72,000 100. What is the carrying amount of accounts payable on December 31, 2020? A. 40,000 B. 42,000 C. 45,000 D. 47,000 101. What is the net foreign currency gain for 2020? A. 4,000 B. 5,000 C. 3,000 D. 6,000

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Page 33 Translation of Financial Statements in Functional Currency to Presentation Currency Numbers 102, 103, 104 and 105 Entity A owns majority of the outstanding ordinary shares of Entity B which is operating in United States of America wherein the functional currency is the USA \$. However, the presentation currency of Entity B is the Philippine Peso because that is the presentation currency of Entity A. For the year ended December 31, 2020, Entity B presented its Statement of Financial Position in its functional currency of USA \$: Current assets \$10,000 Current liabilities \$10,000 Noncurrent assets 40,000 Noncurrent liabilities 20,000 Ordinary share capital 5,000 Preference share capital 8,000 Retained earnings 7,000 Total Assets \$50,000 Total Liabilities and shareholders \$50,000 The ordinary shares are issued on January 1, 2019 while the preference shares are issued on July 1, 2019.
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