Advanced Accounting 11th Edition By Beams – Test Bank

Chapter 12 12-3

SOLUTIONS TO EXERCISES

Solution E12-1

1 b

2 c

3 d

4 a

Solution E12-2

1 c

2 a

3 d

4 b

Solution E12-3

1 b

2 d

3 d

Solution E12-4

1 The dollar has weakened against the yen because it now costs more dollars to buy one yen.

2 10,000,000 yen $.0075 = $75,000

3 Accounts payable $75,000
Exchange loss 1,000
Cash $76,000

4 Zimmer would have entered a contract to purchase yen for future receipt. This would assure that Zimmer had the yen available at that date to pay their obligation, and would have ‘locked in’ the amount of US dollars needed to satisfy that obligation.

Solution E12-5
December 16, 2011 $36,000
Inventory
Accounts payable (euros) $36,000
To record purchase of merchandise from Wing Corporation for 30,000
euros at $1.20 spot rate.
December 31, 2011 $ 1,500
Exchange loss 1,500
Accounts payable (euros) $
To adjust accounts payable to Wing: ($1.25 – $1.20) 30,000
euros.
January 15, 2012 $37,500
Accounts payable (euros) 300
Exchange gain $
Cash 37,200

Pearson Education, Inc. publishing as Prentice Hall

12-4 Derivatives and Foreign Currency: Concepts and Common Transactions

To record payment of 30,000 euros at $1.24 spot rate in settlement of account payable and to recognize gain.

Solution E12-6
Adjustment in value of account receivable for 2011:
($.84 – $.80) 90,000 C$ = $3,600 exchange gain
Adjustment in value of account receivable at settlement in 2012:
($.83 – $.84) 90,000 C$ = $900 exchange loss

Solution E12-7
May 1, 2011 $333,333
Accounts receivable (fc) $333,333
Sales
To record sale of inventory items to Royal for 200,000 pounds:
200,000 pounds/.6000 pounds (indirect quotation).
May 30, 2011 $330,579
Cash (fc)
Exchange loss 2,754 $333,333
Accounts receivable (fc)
To record receipt of 200,000 pounds from Royal in settlement of
accounts receivable: 200,000 pounds/.6050 pounds.
[Based on AICPA]
Solution E12-8
1 $420,000
Receivable at 10/15/08
Euros received and sold for 415,000
U.S. dollars on 11/16/08
Foreign exchange loss 2011 5,000

2 On December 31, 2011 Yumi Corp. adjusts its account payable denominated in euros from $12,000 (10,000*.$1.20) to $12,400 (10,000 $1.24) and recognizes a loss of $400 [10,000 LCU ($1.24 – $1.20)]
3 $240,000
December 31, 2011 note payable
July 1, 2012 note payable 280,000
2012 exchange loss )
$(40,000
4
$140,000
Note receivable December 31, 2011
Amount collected July 1, 2012 105,000
(840,000 LCU 8)
2012 exchange loss $ 35,000

Pearson Education, Inc. publishing as Prentice Hall

Chapter 12 12-5

Solution E12-9
1 Exchange gain or loss in 2011: Gain or (Loss)
Account receivable December 16 $103,500

December 31 adjusted balance 102,000 $(1,500)
150,000 C$ $0.68
Account payable December 2 $195,250
December 31 adjusted balance 187,000 8,250
275,000 C$ $0.68
Net exchange gain for 2011 $ 6,750
2
Exchange gain or loss in 2012: Gain or (Loss)
Account receivable adjusted 12/31 $102,000

Account receivable 1/15/09 101,250 $ (750)
150,000 C$ x $0.675
Account payable adjusted 12/31
$187,000
Account payable 1/30/09 188,375 (1,375)
275,000 C$ x $0.685
Net exchange loss for 2012
$(2,125)

Solution E12-10

1 December 12, 2011 $375,000
Inventory
Accounts payable (yen) $375,000
Purchase from Toko Company (50,000,000 yen $.00750).
December 15, 2011 $ 66,000
Accounts receivable (pounds)
Sales $ 66,000
Sale to British Products Company (40,000 pounds $1.65).

2 December 31, 2011 $ 5,000
Exchange loss 5,000
Accounts payable (yen) $
To adjust accounts payable denominated in yen for exchange rate
change: 50,000,000 yen ($.00760 – $.00750). 2,000
Exchange loss $ 2,000
Accounts receivable (pounds) $
To adjust accounts receivable denominated in pounds for exchange rate change: 40,000 pounds ($1.65 – $1.60).

3 January 11, 2012 $380,000
Accounts payable (yen)
Exchange loss 2,500
Cash $382,500
To record payment to Toko Company (50,000,000 yen $.00765).
January 14, 2012 $ 65,200
Cash
Accounts receivable (pounds) $ 64,000
Exchange gain 1,200
To record receipt from British Products Company: 40,000 pounds $1.63.