11.2 Learning Objective 11-2
1) In a foreign-currency transaction, foreign currencies must be converted to U.S. dollars for financial reporting purposes.
2) The Foreign-Currency Transaction Gain account holds gains and losses on transactions settled in a foreign currency.
3) The net of foreign-currency transaction gains and losses will appear on the income statement.
4) Foreign-Currency Transaction Losses can be avoided if international transactions are settled in U.S. dollars instead of the foreign currency.
5) Hedging enables an entity to protect itself from losing money in a foreign transaction by engaging in a counterbalancing transaction.
6) On June 15, Blonski Computer Company sold twenty-five computers on account to a company located in Argentina for 3,000,000 pesos. On that date, the peso is worth $0.079. On July 15, when the peso was worth $0.070, payment was received. Blonski Computer Company uses the perpetual inventory system. Ignoring Cost of Goods Sold, the journal entry on June 15 by Blonski Computer Company would be:
A) debit Accounts Receivable $237,000 and credit Sales Revenue $237,000.
B) debit Accounts Receivable $210,000 and credit Sales Revenue $210,000.
C) debit Accounts Receivable $210,000, debit to Foreign-Currency Transaction Loss $27,000 and credit Sales Revenue $237,000.
D) debit Accounts Receivable $237,000, credit Sales $210,000, and credit Foreign Currency Transaction Gain $27,000.
7) On June 15, Copps Stores sold twenty-five computers, on account, to a company located in Argentina for 3,000,000 pesos. On that date the peso is worth $0.079. On July 15, when the peso was worth $0.070, payment was received. The journal entry on July 15 by Copps Stores would include a:
A) credit to Cash $237,000.
B) credit to Accounts Receivable $210,000.
C) debit to Foreign-Currency Transaction Loss $27,000.
D) credit to Sales $210,000.
8) On August 1, Deluka Computers, Inc. purchased thirty computer chips, on account, from a company located in Taiwan for 500,000 Taiwan dollars. On that date the Taiwan dollar is worth $0.040. On September 1, when the Taiwan dollar was worth $0.038, payment was made. Deluka Computers uses the perpetual inventory system. The journal entry on August 1 by Deluka Computers, Inc. would be:
A) debit Inventory $19,000 and credit Accounts Payable $19,000.
B) debit Inventory $20,000 and credit Accounts Payable $20,000.
C) debit Inventory $20,000, credit Foreign-Currency Transaction Gain $1,000, and credit Accounts Payable $19,000.
D) debit Inventory $20,000 and credit Cash $20,000.
9) On August 1, Steffen Computers, Inc. purchased thirty computer chips, on account, from a company located in Taiwan for 500,000 Taiwan dollars. On that date the Taiwan dollar is worth $0.040. On September 1, when the Taiwan dollar was worth $0.038, payment was made. The journal entry on September 1 by Steffen Computers, Inc. would include a:
A) debit to Accounts Payable $19,000.
B) debit to Foreign-Currency Transaction Loss $1,000.
C) credit to Foreign-Currency Transaction Gain $1,000.
D) credit to Cash $20,000.
10) A U.S.-based company sells merchandise on account to a company in Mexico. The Mexican company wants to pay for the merchandise in pesos. If the peso decreases in value relative to the dollar, the seller will record a ________. We say the peso ________ relative to the dollar.
A) Foreign Currency Transaction Gain; weakens
B) Foreign Currency Transaction Gain; strengthens
C) Foreign Currency Transaction Loss; weakens
D) Foreign Currency Transaction Loss; strengthens