Module 6 exam 3
Question 1 (16 points)
Question 1 Unsaved
On September 1, 2014, Bylin Company purchased merchandise
from Himeji Company of Japan for 20,000,000 yen payable on October 1, 2014. The
spot rate for yen was $0.0079 on September 1, and the spot rate was $0.0077 on
October 1. The purchase was paid on October 1, 2014.
Part 1: Did the U.S.
dollar strengthen or weaken from September to October and what are the
implications for Bylin’s business?
Part 2: What journal
entry did Bylin record on September 1, 2014?
Part 3: What journal
entry did Bylin record on October 1, 2014
Tank Corporation, a U.S. manufacturer, has a June 30 fiscal
year end. Tank sold goods to their customer in Columbia on May 27, 2014 for
18,000,000 Columbian pesos. The customer agreed to pay pesos in 60 days. When
the customer wired the funds to Tank on July 26, Tank held them in their bank
account until July 31 before selling them and converting them to U.S. dollars.
The following exchange rates apply:
May 27 $0.00055
June 30 $0.00052
July 26 $0.00058
July 31 $0.00056
Record the journal entries related to the dates listed
above. If no entry is required, state no entry.
Question 3 (16 points)
Charin Corporation, a U.S. corporation, imports and exports
small electronics. On December 1, 2014, Charin purchased components from an
Egyptian manufacturer amounting to 500,000 Egyptian pounds. The purchase is
payable in Egyptian pounds. At December 30, Charin wanted to take advantage of
favorable exchange rates but did not have the full amount required to pay off
the entire amount. Charin wired the funds to pay off half of the balance owed
and expected to pay the remaining balance on January 3, 2015. Charin paid the
remaining balance on January 3, 2015.
The respective exchange rates were as follows:
December 1, 2014
1 pound = $.170
December 30, 2014
1 pound = $.165
December 31, 2014
1 pound = $.175
January 3, 2015
1 pound = $.180
Document the journal entries related to these transactions
for the four dates shown. If no entry is required, record no entry.
Question 4 Unsaved
On June 1, 2014, Dapple Industries purchases an option
contract for $5,000 on 10,000 gallons of aviation gas to minimize its
purchasing cost price exposure. At the time, the market price is $2.50 per
gallon and the option price of $2 per gallon will expire 6 months later. Dapple
can exercise the option at its discretion. When Dapple prepares quarterly
reports on June 30, Dapple is still holding the option. On June 30, the market
price of aviation gas is $4.50 per gallon. The option is to be settled net.
On August 1, Dapple exercises the option when the gas market
price is $5.00 per gallon and purchases 40,000 gallons of gas. On August 15,
Dapple uses all of the gas on a charter flight.
What are Dapple’s journal entries with regard to the
aviation gas option? Assume this is a cash flow hedge. Ignore the time value of
Question 5 (16 points)
On November 1, 2013, Mayberry Corporation, a U.S.
corporation, purchased from Cantata Corporation, a Mexican company, some
machinery that cost 1,000,000 pesos. The invoice was payable in pesos on
January 30, 2014. To hedge against rapid changes in the peso, Mayberry entered
into a forward contract on November 1, 2013 with AB Trader & Company, a US
brokerage and investment firm. The contract specified that Mayberry would buy
1,000,000 pesos from AB Trader at $0.084 per peso for settlement on January 30,
Assume that all three companies are subject to the same
accounting standards and have December 31st year-ends. The spot rates for pesos
on November 1, December 31, and January 30, are $0.082, $0.080, and $0.089,
respectively. The 30-day forward rate for pesos on December 31, 2013 is $0.083.
The forward contract is not settled net.
Record General Journal entries for Mayberry Corporation on
November 1, December 31, and January 30. If no entry is required on a
particular date, indicate no entry in the General Journal. This is
a fair value hedge.
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