[SOURCE] Midterms

Question 1

An entity started trading in country A, whose currency was the dollar. After several years, the entity expanded and exported its product to country B, whose currency was the euro. The business was conducted through a subsidiary in country B. The subsidiary is essentially an extension of the entity’s own business, and the directors of the two entities are common. The functional currency of the subsidiary is

a. the euro
b. the dollar
c. the dollar or the euro
d. difficult to determine

Answer 1

b. the dollar

Question 2

The exchange rate is

a. the ratio of exchange for two currencies
b. the spot exchange rate at the end of the reporting period
c. the exchange rate for immediate delivery
d. the difference resulting from translating a given number of one currency into another currency at different exchange rates

Answer 2

a. the ratio of exchange for two currencies

Question 3

Exchange differences arising from foreign currency transactions shall

a. be recognized in profit or loss in which they arise
b. be included in other comprehensive income
c. be deferred and amortized over a reasonable period
d. be charged to retained earnings

Answer 3

a. be recognized in profit or loss in which they arise

Question 4

It is the currency of the primary economic environment in which an entity operates.

a. reporting currency
b. functional currency
c. presentation currency
d. foreign currency

Answer 4

b. functional currency

Question 5

The accounting for the effects of foreign currencies on financial statements is prescribed under which standard?

a. PAS 12
b. PFRS 21
c. PFRS 9
d. PAS 21

Answer 5

d. PAS 21

Question 6

Upon arrival in Chile, Karen exchanged $1,000 of US currency into 480,000 Chilean pesos. While returning after her two-month visit, she exchanged her remaining 50,000 pesos into $100 US currency. What amount of gain (loss) did Karen experience on the 50,000 pesos she held during her visit and converted to US dollars at the departure date?

a. loss of $4
b. gain of $4
c. loss of $6
d. no gain or loss

Answer 6

a. loss of $4

Question 7

On September 3, 20x8, Nuggets Corporation purchases goods for a US dollar equivalent of $17,000 from a Swiss company. The transaction is denominated in Swiss francs (SFr). The payment is made on October 10. The exchange rates were: September 3: 1 Swiss franc = $0.85; October 10: 1 Swiss franc = $0.90. What entry is required to revalue the foreign currency payable to US dollar equivalent value on October 10?

a. Dr FC Transaction loss 1,000; Cr Accounts Payable (SFr) 1,000
b. Dr Accounts Payable (SFr) 850; Cr FC Transaction Gain 850
c. Dr FC Transaction loss 850; Cr Accounts Payable (SFr) 850
d. Dr Accounts Payable (SFr) 1000; Cr FC Transaction Gain 1000

Answer 7

a. Dr FC Transaction loss 1,000; Cr Accounts Payable (SFr) 1,000

Question 8

On December 5, 20x8, Texas-based Mavericks Corp. purchased foods from a Saudi Arabian firm for 100,000 riyals (SAR) to be paid on January 10, 20x9. The transaction is denominated in Saudi riyals. Mavericks’ fiscal year ends on December 31, and its reporting currency is the US dollar. The exchange rates are: December 5, 20x8: 1 riyal = $0.265; December 31, 20x8: 1 riyal = $0.262; January 10, 20x9: 1 riyal = $0.264.

Based on the information, what journal entry would Mavericks make on December 31, 20x8, to revalue the foreign currency payable to its equivalent US dollar value?

a. [Dr] Accounts Payable (SAR) 300; [Cr] FC Transaction gain 300

b. [Dr] Accounts Payable (SAR) 100; [Cr] FC Transaction gain 100

c. [Dr] FC Transaction loss 300; [Cr] Accounts Payable (SAR) 300

d. [Dr] FC Transaction loss 200; [Cr] Accounts Payable (SAR) 200

Answer 8

a. [Dr] Accounts Payable (SAR) 300; [Cr] FC Transaction gain 300

Question 9

On December 5, 20x8, Texas-based Mavericks Corp. purchased foods from a Saudi Arabian firm for 100,000 riyals (SAR) to be paid on January 10, 20x9. The transaction is denominated in Saudi riyals. Mavericks’ fiscal year ends on December 31, and its reporting currency is the US dollar. The exchange rates are: December 5, 20x8: 1 riyal = $0.265; December 31, 20x8: 1 riyal = $0.262; January 10, 20x9: 1 riyal = $0.264.

Based on the information given, what journal entry would Mavericks make on January 10, 20x9, to revalue the foreign currency payable to its equivalent US dollar value?

a. [Dr] Accounts Payable (SAR) 300; [Cr] FC Transaction gain 300

b. [Dr] Accounts Payable (SAR) 100; [Cr] FC Transaction gain 100

c. [Dr] FC Transaction loss 100; [Cr] Accounts Payable (SAR) 100

d. [Dr] FC Transaction loss 200; [Cr] Accounts Payable (SAR) 200

Answer 9

d. [Dr] FC Transaction loss 200; [Cr] Accounts Payable (SAR) 200

Question 10

On December 5, 20x8, Texas-based Mavericks Corp. purchased foods from a Saudi Arabian firm for 100,000 riyals (SAR) to be paid on January 10, 20x9. The transaction is denominated in Saudi riyals. Mavericks’ fiscal year ends on December 31, and its reporting currency is the US dollar. The exchange rates are: December 5, 20x8: 1 riyal = $0.265; December 31, 20x8: 1 riyal = $0.262; January 10, 20x9: 1 riyal = $0.264.

Based on the preceding information, what was the overall foreign currency gain or loss on the accounts payable transaction?

Based on the preceding information, what was the overall foreign currency gain or loss on the accounts payable transaction?

a. $200 gain
b. $100 gain
c. $300 loss
d. $200 loss

Answer 10

c. $300 loss

Question 11

Detroit-based Pistons Corporation purchased ancillaries from a Japanese firm on December 1, 20x8, for 1 million yen when the spot rate for yen was $0.0095. On December 31, 20x8, the spot rate stood at $0.0096. On January 10, 20x9, Pistons paid 1 million yen acquired at a rate of $0.0094. Pistons’ income statements should report a foreign exchange gain or loss for the years ended December 31, 20x8, and 20x9 of:

a. $0; $0
b. $100 loss; $200 gain
c. $0; $100 gain
d. $100 gain; $100 loss

Answer 11

b. $100 loss; $200 gain

Question 12

Initially, a foreign currency transaction shall be recorded by applying to the foreign currency amount:

a. the spot exchange rate at the date of the transaction
b. the closing rate at the end of the reporting period
c. the average exchange rate during the year
d. the spot exchange rate at the date of the settlement of the transaction

Answer 12

a. the spot exchange rate at the date of the transaction

Question 13

These are money held, financial assets to be received, and financial liabilities to be paid in fixed or determinable amounts of money:

a. foreign currency loans
b. monetary items
c. long-term items
d. nonmonetary items

Answer 13

b. monetary items

Question 14

Nonmonetary items that are measured in terms of historical cost denominated in a foreign currency shall be reported using the:

a. spot exchange rate
b. closing rate
c. exchange rate at the date of transaction
d. average rate

Answer 14

c. exchange rate at the date of transaction

Question 15

Monetary items are:

a. cash only
b. cash and bank balance
c. cash, short-term receivables, and marketable securities
d. money held, assets receivable, and liabilities payable, in fixed or determinable amounts of cash or cash equivalents

Answer 15

d. money held, assets receivable, and liabilities payable, in fixed or determinable amounts of cash or cash equivalents

Question 16

Many companies have set up production plants in other countries like Singapore to take advantage of labor cost savings. This is an example of:

a. international diversification
b. use of economic resources
c. utilize technology
d. none

Answer 16

b. use of economic resources

Question 17

This highlights the importance of sustainable production methods and non-conventional energy resources for your production process. This is related to:

a. payrolling challenges
b. brand consistency
c. new market competition
d. environmental issues on a global level

Answer 17

d. environmental issues on a global level

Question 18

A problem in international business wherein the particulars of imports, exports, offshore shipping, and related logistics are steered by international laws and other foreign legislations is related to:

a. supply chain risks
b. talent acquisition and onboarding
c. nuances of foreign policies, geopolitics, and cross-country relations
d. compliance issues

Answer 18

a. supply chain risks

Question 19

Following are methods that will help one reduce the international business challenges except:

a. inculcate cultural sensitivity in your reach-out and operations
b. carry out thorough research on employment laws and work permits in the local country
c. brand consistency
d. all of these are methods that will help one reduce the international business challenges

Answer 19

c. brand consistency

Question 20

Employing a local to verify the correctness and compliance of these contracts is one way to solve this problem in international business:

a. managing globally distributed teams
b. cultural variations
c. language obstacles
d. supply chain risks

Answer 20

c. language obstacles

Question 21

A transaction gain or loss at the settlement date is:

a. a change in the exchange rate quoted by a foreign exchange rate
b. synonymous with the translation of foreign currency financial statements into dollars
c. the difference between the recorded dollar amount of an account receivable denominated in a foreign currency and the amount of dollars received
d. the difference between the buying and selling rate quoted by a foreign exchange trader at the settlement date

Answer 21

c. the difference between the recorded dollar amount of an account receivable denominated in a foreign currency and the amount of dollars received

Question 22

Northport Inc., a Philippine company, had the following foreign currency transactions during 2030:

Inventory was purchased from a foreign supplier on January 20, 2030 for the Philippine peso equivalent of P90,000. The invoice was paid on March 20, 2030 at the peso equivalent of P96,000.

On July 1, 2030, Northport borrowed the peso equivalent of P500,000, evidenced by a note that was payable in the lender’s local currency on July 1, 2032. On December 31, 2030, the Philippine peso equivalents of the principal amount and accrued interest were P520,000 and P26,000, respectively. Interest on the note is 10% per annum.

In Northport’s 2030 income statement, what amount should be included as foreign currency transaction loss as part of net income?

a. P0
b. P6,000
c. P21,000
d. P27,000

Answer 22

d. P27,000

Question 23

FiberXers acquired a computer for $100,000 when the exchange rate was P1 = $20. FiberXers reported a foreign exchange loss of P15,000 in its 2030 financial statement and a foreign exchange gain of P10,000 in its 2031 financial statements.

What is the exchange rate on December 31, 2030?

a. P1 = 19.85
b. $1 = P20.15
c. $1 = P0.20
d. none of these

Answer 23

c. $1 = P0.20

Question 24

FiberXers acquired a computer for $100,000 when the exchange rate was P1 = $20. FiberXers reported a foreign exchange loss of P15,000 in its 2030 financial statement and a foreign exchange gain of P10,000 in its 2031 financial statements.

What is the amount of the computer on the December 31, 2030 statement of financial position?

a. P2,000,000
b. P2,015,000
c. P5,000
d. P20,000

Answer 24

c. P5,000

Question 25

FiberXers acquired a computer for $100,000 when the exchange rate was P1 = $20. FiberXers reported a foreign exchange loss of P15,000 in its 2030 financial statement and a foreign exchange gain of P10,000 in its 2031 financial statements.

The exchange rate on the settlement date is:

a. P1 = $0.10
b. P1 = $20.05
c. $1 = P20.15
d. P1 = $10

Answer 25

c. $1 = P20.15

Question 26

FiberXers acquired a computer for $100,000 when the exchange rate was P1 = $20. FiberXers reported a foreign exchange loss of P15,000 in its 2030 financial statement and a foreign exchange gain of P10,000 in its 2031 financial statements.

**How much is the cost of the computer on the December 31, 2031 statement of financial position?
**
a. P10,000
b. P20,000
c. P5,000
d. P2,000,000

Answer 26

c. P5,000

Question 27

FiberXers acquired a computer for $100,000 when the exchange rate was P1 = $20. FiberXers reported a foreign exchange loss of P15,000 in its 2030 financial statement and a foreign exchange gain of P10,000 in its 2031 financial statements.

**
How much is the total accounts payable on December 31 statement of financial position?**

a. P20,000
b. P2,015,000
c. P5,000
d. P2,000,000

Answer 27

a. P20,000