Balance Sheet, Income Statement and Comprehensive Income Flashcards
How are foreign transactions recorded on the income statement?
Transactions denominated in a foreign currency are recorded at the spot rate on the date of transaction.
What does Comprehensive Income include?
Comprehensive income represents all changes in stockholders’ equity that come from non owner sources. Therefore, comprehensive income includes all net income plus any and all components of OCI, PUFI items. Comprehensive income does not include investments by owners, owner distributions or dividends to stockholders.
Babel Co, a US Company enters into a contract which a company in Japan, agrees to buy electronic products from Babel, payable in yen after year-end. If the yen depreciates versus the US dollar, how will Babel book this transaction?
Babel will book a loss on it’s income statement at year end. Babel is a US company set to receive the payment in Yen.
Because the Yen depreciated versus the US dollar, this will cause a loss for Babel that will go on its income statement at year end.
A European company has made a purchase, which it intends to pay for in Japanese yen. Describe how the foreign exchange market could drive a loss for the European company.
Any situation in which the Euro depreciates versus the yen will cause the European company to book a loss.
The Yen appreciating versus the Euro and a situation in which more euros are needed to purchase the yen describe the euro depreciating versus the yen.
In a foreign currency transaction, what happens if the US Dollar is falling?
When the US Dollar is falling (depreciating) relative to a foreign currency, it means the value of the US Dollar decreases compared to the foreign currency. As a result, it will require more US dollars to purchase a single unit of the foreign currency.
A Company’s balance sheet in accumulated other comprehensive income from one period to the next will be:
Decreased by pension gains resulting from actual returns exceeding expected returns.
Company X in Great Britain enters into a forward exchange contract with Company Y in Greece, to be settled in 6 months. While the agreed upon forward rate (based on today’s spot rate) is 1 euro per .75 pounds, if in 6 months the actual spot rate is 1 euro per .77 pounds, this will favor Company:
Company X because the euro appreciated versus the pound. The euro appreciated versus the pound, and because Company X (in Great Britain) locked in the rate of .75 pounds per euro, it will benefit because had it not locked in the rate, the company would have ended up paying .77 pounds per euro at settlement.
