Professional Documents
Culture Documents
Transactions (Part 4)
Multiple Choice Theory
1. A
2. B
3. C
4. D
5. B
Multiple Choice Computational
Answers at a glance:
1. C
6. A
2. A
7. E
3. D
8. A
4. A
9. B
5. C
10. C
11.
12.
13.
14.
15.
A
C
D
A
A
16.
17.
18.
19.
20.
D
C
E
D
A
21.
22.
23.
24.
25.
C
B
D
D
A
26.
27.
28.
29.
30.
31.
A
B
B
A
D
A
Solutions:
1. C
Solution:
Receivable from XYZ, Inc. (in pesos)
Multiply by: Closing rate, Dec. 31, 20x1
Adjusted balance of Payable to ABC Co. (in AMD)
4,000,000
2
8,000,000
7,000,000
8,000,000
(1,000,000)
2. A
Solution:
XYZ's separate profit before FOREX loss (in AMD)
FOREX loss (in AMD)
XYZ's separate profit after FOREX loss (in AMD)
7,000,000
(1,000,000)
6,000,000
3. D
Solution:
219
(12M 1.50)
(12M 2.00)
8,000,000
6,000,000
(2,000,000)
3,428,571
3,000,000
(428,571)
-
(2,428,571)
4. A
Solution:
220
ABC Co.
(in pesos)
Assets
XYZ, Inc.
XYZ, Inc.
(in AMD) - Adjustments (in AMD) unadjusted
adjusted
40,000,000
40,000,000
40,000,000
40,000,000
56,000,000
8,000,000
4,000,000
68,000,000
Liabilities
Payable to ABC Co.
Total liabilities
32,000,000
32,000,000
14,000,000
7,000,000
21,000,000
16,000,000
12,000,000
Investment in subsidiary
1,000,000
14,000,000
8,000,000
22,000,000
Rates
2
20,000,000
7,000,000
6,000,000
36,000,000
19,000,000
18,000,000
68,000,000
40,000,000
40,000,000
20,000,000
2
12,000,000
(1,000,000)
1.75
76,000,000
76,000,000
39,000,000
16,000,000
23,428,571
3,428,571)
(see above)
39,000,000
9,000,000
(2,428,571)
37,000,000
20,000,000
76,000,000
The 1,000,000 adjustments pertain to the FOREX loss on the intercompany payable which is recognized in the subsidiarys separate profit or
loss. Notice that the even though the intercompany accounts have been eliminated, the FOREX loss remains in the consolidated total equity
221
in other
(2,428,571)
1,798,447
(630,124)
7. E
CORRECTION: Dear Sir/Maam: The correct answer was
omitted from the answer choices. I am sorry for the error.
The CORRECT ANSWER is 78,997,411 (See solution below)
222
Solution:
Hedging instrument
Forward contract (Derivative)
July 1, 20x1
No entry
Dec. 31, 20x1
Forward contract.2,997,411
Deferred tax liability.... 1,198,964
Accumulated OCI 1,798,447
to recognize the change in the fair value of the forward
contract
Consolidated
(without
hedging)
Journal entry
on hedging
instrument
Total assets
76,000,000
2,997,411
78,997,411
Total liabilities
39,000,000
1,198,964
40,198,964
16,000,000
16,000,000
23,428,571
23,428,571
(2,428,571)
37,000,000
38,798,447
76,000,000
78,997,411
1,798,447
Consolidated
(with hedging)
(630,124)
100,000
114,286
(14,286)
10. C
Solution:
Fixed selling price
Selling price at current spot rate (4M 50)
Deficiency - receipt from broker
100,000
80,000
20,000
223
11. A
Solution:
Fixed selling price
Selling price at current spot rate (4M 45)
Fair value of forward contract receivable (asset)
100,000
88,888
11,111
12. C
Solution:
Fixed purchase price (2,400 x 1,000)
Purchase price at current mkt. price (2,800 x 1,000)
Derivative asset - receivable from broker
2,400,000
2,800,000
400,000
13. D
Solution:
Fixed purchase price (2,400 x 1,000)
Purchase price at current mkt. price (2,200 x 1,000)
Derivative liability - payable to broker
2,400,000
2,200,000
(200,000)
15. A
Solution:
Fixed purchase price (100,000 x 200)
Purchase price at current mkt. price (100,000 x 260)
Receivable from broker
Multiply by: PV of 1 @10%, n=1
Fair value of forward contract (asset)
20,000,000
26,000,000
6,000,000
0.90909
5,454,540
16. D
Solution:
Fixed purchase price (100,000 x 200)
Purchase price at current mkt. price (100,000 x 160)
Payable to broker
Multiply by: PV of 1 @10%, n=0
Fair value of forward contract (liability)
20,000,000
16,000,000
(4,000,000)
1
(4,000,000)
17. C
Solution:
"Long" futures contract to purchase gold:
Fixed purchase price (2,000 x 400)
Purchase price at current market price (1,800 x 400)
800,000
720,000
Payable to broker
(80,000)
1,280,000
1,520,000
240,000
1,000,000
880,000
120,000
360,000
450,000
Payable to broker
(90,000)
190,000
18. E
CORRECTION: Dear Sir/Maam: The correct answer was
omitted from the answer choices. I am sorry for the error.
The CORRECT ANSWER is 10,286 (See solution below)
Solution:
Purchase price using the option
100,000
Purchase price without the option (4M 35)
114,286
14,286
Savings from exercising the option - gross
(4,000)
Less: Cost of purchased option
Net savings from call option
10,286
19. D
20. A 40,000 the cost of option
21. C
Solution:
Fixed purchase price (880 x 20,000)
Purchase price at current market price (960 x 20,000)
Derivative asset - receivable from broker
22. B
Solution:
Fair value of call option - July 1, 20x1 (cost)
Fair value of call option - Dec. 31, 20x1 (see above)
Unrealized gain - increase in fair value
23. D
Solution:
Fixed purchase price (880 x 20,000)
Purchase price at current market price (1,000 x 20,000)
225
17,600,000
19,200,000
1,600,000
40,000
1,600,000
1,560,000
17,600,000
20,000,000
2,400,000
24. D
Solution:
March. Cash (see above)
31,
Call option (see above)
20x2
Gain on call option (squeeze)
2,400,000
1,600,000
800,000
25. A
Solution:
20x1
20x2
400,000 320,000
400,000 400,000
Net cash settlement - (payment) (due on Dec. 31, 20x3)
(80,000)
Receive variable (at Jan. 1 current rates)
Pay 10% fixed
26. A
Solution:
Net cash settlement - (payment) (due on Dec. 31, 20x3)
Multiply by: PV of 1 @8%, n=1
Fair value of interest rate swap - liability
(80,000)
0.9259
(74,072)
27. B
Solution:
20x1
400,000
400,000
Net cash settlement receipt (due on Dec. 31, 20x3)
-
20x2
480,000
400,000
80,000
28. B
Solution:
Net cash settlement - receipt (due on Dec. 31, 20x3)
Multiply by: PV of 1 @12%, n=1
Fair value of interest rate swap - asset
80,000
0.8929
71,432
360,000
320,000
40,000
3.23972
129,589
31. A
Solution:
Receive variable (4M x 12%)
Pay 8% fixed
Net cash settlement - receipt (due annually for the next 4 yrs.)
Multiply by: PV ordinary annuity @12%, n=3
Fair value of forward contract - receivable
480,000
320,000
160,000
2.40183
384,293
227