At the end of 2020, an Italian subsidiary of a U.S. parent reports €1,000,000 in equipment purchased when the exchange rate was $1.40, and €3,000,000 in equipment purchased when the exchange rate was $1.50. The average exchange rate for 2020 is $1.35, and the beginning and ending rates for 2020 are $1.42 and $1.31, respectively. If the Italian subsidiary’s functional currency is the U.S. dollar, the equipment account, in U.S. dollars, is a. $5,240,000 b. $5,350,000 c. $5,400,000 d. $5,900,000

At the end of 2020, an Italian subsidiary of a U.S. parent reports €1,000,000 in equipment purchased when the exchange rate was $1.40, and €3,000,000 in equipment purchased when the exchange rate was $1.50. The average exchange rate for 2020 is $1.35, and the beginning and ending rates for 2020 are $1.42 and $1.31, respectively. If the Italian subsidiary’s functional currency is the U.S. dollar, the equipment account, in U.S. dollars, is a. $5,240,000 b. $5,350,000 c. $5,400,000 d. $5,900,000

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter10: Measuring Exposure To Exchange Rate Fluctuations

Section: Chapter Questions

Problem 2ST

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ABC Company has the Philippine peso as its functional currency. The entity expects to purchase goods from USA for $50,000 on March 31, 2023. Accordingly, the entity is exposed to a foreign currency risk. If the dollar increases before the purchase takes place, the entity will have to pay more pesos to obtain the $50,000 that it will have to pay for the goods. On October 1, 2022, the entity entered into a foreign currency forward contract with a bank speculator to purchased $50,000 in six months for a fixed amount of P2,050,000 or P41 to $1. This forward contract is designated as cash flow hedge of the entity’s exposure to increase in dollar exchange rate. On December 31, 2022, the exchange rate is P42 to $1 and on March 31, 2023, the exchange rate is P44 to $1. How much is the derivative asset (liability) on October 1, 2022?
Bento Corporation (a U.S.-based company) acquired merchandise on account from a foreign supplier on November 1, 2023. for 100,000 crowns. It paid the foreign currency account payable on January 15, 2024. The following exchange rates are relevant: Date November 1, 2023 December 31, 2023 January 15, 2024 a. The Required: a. How does the fluctuation in the U.S. dollar per crown exchange rate affect Bento's 2023 income statement? b. How does the fluctuation in the U.S. dollar per crown exchange rate affect Bento's 2024 income statement? b. The U.S. Dollar per Crown foreign exchange $ 0.754 0.742 0.747 in the dollar value of the crown payable is recorded as in 2023. foreign exchange in the dollar value of the crown payable is recorded as in 2024.
Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018, for 130,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency exchange rates are as follows: November 1, 2017 $0.16 = 1 peso December 31, 2017 0.17 = 1 January 17, 2018 0.18 = 1 What amount does Newberry’s consolidated income statement report for cost of goods sold for the year ending December 31, 2018? $16,000. $17,000. $18,000. $19,000.
Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018, for 130,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency exchange rates are as follows: November 1, 2017 $0.16 = 1 peso December 31, 2017 0.17 = 1 January 17, 2018 0.18 = 1 January 31, 2018 0.19 = 1 LO 8-2, 8-3 What amount does Newberry’s consolidated balance sheet report for this inventory at December 31, 2017? $16,000. $17,000. $18,000. $19,000.
On September 12, 2023, Levis, a U.S. company, purchased goods from a German Company at a price of 50,000 Euros, when the direct exchange rate was 1 Euro = $1.35. The account has not been settled as of December 31, 2023, when the exchange rate was 1 Euro = $1.32. On February 2, 2024 Levis paid off the amount due to German Co. when the exchange rate was 1 Euro = $1.33 The entry required to revalue the foreign currency liability to U.S. $ on December 31, 2023 is O a. Debit Foreign Currency Transaction Loss for $500 and credit Accounts Payable (€) for $500. O b. Debit Accounts Payable (€)for $500 and credit Foreign Currency Transaction gain for $500. O c. Debit Foreign Currency Transaction Loss for $1,500 and credit Accounts Payable (€) for $1,500. O d. Debit Accounts Payable (€) for $1,500 and credit Foreign Currency Transaction gain for $1,500.
A company based in the United Kingdom has an Italian subsidiary. The subsidiary generates €25,000,000 a year, received in equivalent semiannual installments of €12,500,000. The British company wishes to convert the euro cash flows to pounds twice a year. It plans to engage in a currency swap in order to lock in the exchange rate at which it can convert the euros to pounds. The current exchange rate is €1.5/£. The fixed rate on a plain vanilla currency swap in pounds is 7.5 percent per year, and the fixed rate on a plain vanilla currency swap in euros is 6.5 percent per year. a. Determine the notional principals in euros and pounds for a swap with semiannual payments that will help achieve the objective. b. Determine the semiannual cash flows from this swap.
Company X is a U.S.-based IT company with operations and earnings in a number of foreign countries. The company's profits by subsidiary, in local currency (in millions), are shown in the following table for 2019 and 2020. Net Income Japanese Subsidiary Britih Subsidiary 2019 JPY 200 GBP 100.00 2020 JPY 1,480 GBP 108.40 The average exchange rate for each year, by currency pairs, is the following. Exchange Rate USD = 1 GBP JPY = 1 USD 2019 97.57 1.5646 2020 90.88 1.6473 Use the above data, Students answer the following questions. a. What is Company X's consolidated profits in U.S. dollars in 2019 and 2020? b. If the same exchange rates are used for both years, what is the change in corporate earnings on a "constant currency" basis? c. Using the results of the constant currency analysis in part b, is it possible to separate Company X's growth in earnings between local currency earnings and foreign exchange rate impacts on a consolidated basis?
Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018, for 130,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency exchange rates are as follows:Cost of goods sold . . .. LCU 5,000,000Beginning inventory . . . . . . . 500,000Ending inventory . . . . . . . . . . 600,000November 1, 2017 . . . . $0.16 = 1 pesoDecember 31, 2017 . ...... . . 0.17 = 1January 17, 2018 . . . . . . . . . 0.18 = 1January 31, 2018 . . . . . . . . 0.19 = 1What amount does Newberry’s consolidated income statement report for cost of goods sold for the year ending December 31, 2018?a. $16,000.b. $17,000.c. $18,000.d. $19,000.
On September 12, 2023, Levis, a U.S. companypurchased goods from a German Company at a price of 50,000 Euros, when the direct exchange rate was 1 Euro = \$1.35 The account has not been settled as of December 31, 2023, when the exchange rate was 1 Euro = \$ 1.32. On February 22024 Levis paid off the amount due to German Co. when the exchange rate was Euro o = \$1 1.33 The entry required to revalue the foreign currency liability to U.S. on December 31, 2023 is a. Debit Foreign Currency Transaction Loss for $ 500 and credit Accounts Payable (for $ 500. b. Debit Accounts Payable () for $1,500 and credit Foreign Currency Transaction gain for $1,500. c. Debit Foreign Currency Transaction Loss for $1,500 and credit Accounts Payable () for $1,500 . d. Debit Accounts Payable (for $500 and credit Foreign Currency Transaction gain for $500.
Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018, for 130,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency exchange rates are as follows:Cost of goods sold . . .. LCU 5,000,000Beginning inventory . . . . . . . 500,000Ending inventory . . . . . . . . . . 600,000November 1, 2017 . . . . $0.16 = 1 pesoDecember 31, 2017 . ...... . . 0.17 = 1January 17, 2018 . . . . . . . . . 0.18 = 1January 31, 2018 . . . . . . . . 0.19 = 1 What amount does Newberry’s consolidated balance sheet report for this inventory at December 31, 2017? Choose the correct.a. $16,000.b. $17,000.c. $18,000.d. $19,000.
On 1 July 2018 an Australian company lent to its New Zealand subsidiary an amount of NZ$2.5 million for a period of six years. At the time the exchange rate was A$1 5 NZ$1.13. Assume the exchange rate was A$1 5 NZ$1.09 on 30 June 2019, while on 30 June 2020 the exchange rate was A$1 5 NZ$1.02. Required Prepare the general journal entries to record the above events for the first two years of the loan, following the requirements of AASB 121. Be careful to specify any assumptions you make. (Lo2, Lo3)
A U.S. company's foreign subsidiary had the following amounts in stickles (5), the functional currency, in 2018: Cost of goods sold $12,000, e00 Ending inventory Beginning inventory 600,000 240,000 The average exchange rate during 2018 was 81 = $.96. The beginning inventory was acquired when the exchange rate was §1 = $1.20. The ending inventory was acquired when the exchange rate was §1 = $.90. The exchange rate at December 31, 2018 was §1= $.84. Assuming that the foreign nation for the subsidiary had a highly inflationary economy, at what amount should that foreign subsidiary's purchases have been reflected in the 2018 U.S. dollar income statement? Multiple Cholce $11,865,600. $11.577,600. $11.520.000. $11,613,600. $11,523,600.

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At the end of 2020, an Italian subsidiary of a U.S. parent reports €1,000,000 in equipment purchased when
the exchange rate was $1.40, and €3,000,000 in equipment purchased when the exchange rate was $1.50.
The average exchange rate for 2020 is $1.35, and the beginning and ending rates for 2020 are $1.42 and
$1.31, respectively. If the Italian subsidiary’s functional currency is the U.S. dollar, the equipment account,
in U.S. dollars, is
a. $5,240,000
b. $5,350,000
c. $5,400,000
d. $5,900,000