51) A foreign-currency transaction gain/loss is reported on the:
A) balance sheet as an equity account
B) income statement as other revenues/expenses
C) income statement as an extraordinary item
D) not reported on the income statement but is adjusted by debiting or crediting Retained Earnings
52) A foreign-currency translation adjustment is reported on the:
A) balance sheet as an equity account
B) income statement as other revenues/expenses
C) income statement as an extraordinary item
D) Other comprehensive income
53) As described in Chapter 10 of the textbook, hedging is a legal and ethical accounting method companies use to protect themselves from the effects of:
A) fluctuating foreign-currency exchange rates
B) fluctuating interest rates
C) fluctuating stock prices
D) fluctuating demand for the company's products
54) A foreign-currency transaction gain or loss on a credit purchase is calculated as the difference between the exchange rates on:
A) the date the merchandise is ordered and the date it arrives
B) the date of the purchase and the date of cash payment for the purchase
C) the date the merchandise is purchased and the date it is sold
D) the date the merchandise is ordered and the date payment is made for the merchandise
55) When referring to foreign-currency transactions,
hedging
is a process in which:
A) companies wager that the currency of one country will rise relative to their own
B) a company wagers that the currency of one country will fall relative to its own
C) a company protects itself from losing money in one transaction by engaging in a counterbalancing transaction
D) companies sell the same product in various countries at similar prices to minimize the currency risks associated with any one particular country
56) A Canadian company selling merchandise to a foreign company will incur an exchange loss when:
A) the foreign currency has increased in value relative to the Canadian dollar between the date of sale and the date of delivery
B) the foreign currency has decreased in value relative to the Canadian dollar between the date of sale and date of cash receipt
C) the foreign currency has decreased in value relative to the Canadian dollar between the date of cash receipt and date of delivery
D) the foreign currency has increased in value relative to the Canadian dollar between the date the order is placed and the date of delivery
57) A Canadian company purchasing merchandise from a foreign company will incur an exchange gain when:
A) the foreign currency has decreased in value relative to the Canadian dollar between the date of payment and date of delivery
B) the foreign currency has decreased in value relative to the Canadian dollar between the date of purchase and the date of payment
C) the foreign currency has increased in value relative to the Canadian dollar between the date of payment and the date of delivery
D) the foreign currency has increased in value relative to the Canadian dollar between the date the order is placed and the date of delivery
58) Distribution Services Inc., a Canadian company, sold merchandise on account to Battle River Corporation, a British company, for 400,000 British pounds. The relevant exchange rates for the British pound were as follows:
Date of sale/delivery$1.48
Date of cash receipt$1.49
The exchange rate gain or loss for Distribution Services on this transaction was:
A) $4,000 loss
B) $8,000 loss
C) $4,000 gain
D) $8,000 gain
59) Suppose a Canadian company purchased merchandise on account from a British firm for 200,000 British pounds. Assume the exchange rates for the British pound were as follows:
Date of delivery$1.53
Date of cash payment$1.57
The exchange rate gain/loss for the Canadian company on this transaction was:
A) $8,000 loss
B) $2,000 loss
C) $2,000 gain
D) $8,000 gain
60) Assets and liabilities of a foreign subsidiary are translated into dollars on a consolidated balance sheet at the:
A) exchange rate in effect on the date of the financial statements
B) older, historical exchange rates on the date of the purchase of the subsidiary
C) average exchange rate in effect over the past 5 years
D) anticipated exchange rate in effect over the next 5 years