Acctg Solution Chapter 19

Chapter 19
Problem I
1.
Indirect Exchange Rates

Philippine Viewpoint:
1 $ = P40; 1 Peso = $0.025 ($1/P40)
1 Singapore dollar = P32.00; 1 Peso = 0.03125 Singapore (1 Singapore Dollar/P32)
2.
FCU
Peso
Direct Exchange Rate
P8,000
P40.00
$200; or
= P8,000 x $1/P40 = $200

3.
4,000 Singapore dollars x P32 = P128,000
Problem II
a. Exchange rates:
Direct
Exchange Rate
Indirect
Exchange Rate
Arrival Date
Departure Date
1 Singapore dollar = P33.00
1 Singapore Dollar = P32.50
(P33,000 / 1,000 Singapore

dollars)
(P3,250 / 100 Singapore

dollars)
P1.00 = .03 Singapore dollars
P1.00 = .03 Singapore dollars
(1,000 Singapore dollars /

P33,000)
(100 Singapore dollars /

P3,250))
2.
The direct exchange rate has decreased. This means that the peso has
strengthened during Mr. Alt's visit. For example, upon arrival, Mr. Alt had to pay P33
per each dollar. Upon departure, however, each dollar is worth just P32.50. This
means that the relative value of the peso has increased or, alternatively, the value
of the dollar has decreased.
3.
The Philippine peso equivalent values for the 100 Singapore dollars are:
Arrival date
100 dollars x P33.00 =
Departure date
100 dollars x P32.50 =
Foreign Currency Transaction Loss
P3,300
3,250
P 50
Mr. Alt held dollars for a time in which the dollars was weakening against the peso.
Thus, Mr. Alt experienced a loss by holding the weaker currency.
Problem III
1. If the direct exchange rate increases, the peso weakens relative to the foreign
currency unit. If the indirect exchange rate increases, the peso strengthens relative to
the foreign currency unit.
2.
Transaction
Importing
Importing
Settlement
Currency
Direct Exchange Rate

Increases
Indirect Exchange Rate

Increases
Decreases
NA
L
NA
G
NA
G
NA
L
NA
G
NA
L
NA
L
NA
G
Purchases..
Accounts payable ($24,000 x P40.55)
973,200
Exporting
Exporting
Peso
Decreases
LCU
Peso
LCU
Problem IV
1.
December 1, 20x4 (Transaction date):
973,200
December 31, 20x4 (Balance sheet date):

Foreign currency transaction loss...
Accounts payable [$24,000 x (P40.80 P40.55)]
Accounts payable valued at 12/31 Balance Sheet
($24,000 x P40.80)
Accounts payable valued at 12/1 Date of Transaction
($24,000 x P40.55)
Adjustment to accounts payable needed..
6,000
6,000
P979,200
973,200
P 6,000
March 1, 20x5 (Settlement date):

Accounts payable
Foreign currency transaction gain [$24,000 x (P40.80 P40.65)]
Cash ($24,000 x P40.65).
979,200
3,600
975,600
2.
a.
a.1. None transaction date (December 1, 20x4)
a.2. P6,000 loss
a.3. P3,600 gain (March 1, 20x5)
b.
b.1. P979,200 spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 spot rate on the transaction date or historical rate on the balance sheet
date.
Problem V
1. December 1, 20x4 (Transaction date):
Accounts receivable ($60,000 x P40.00)
Sales
2,400,000
2,400,000

Accounts receivable..
Foreign currency transaction gain [$60,000 x (P40.70 P40.00)]
Accounts receivable valued at 12/31 Balance Sheet
($60,000 x P40.70)
Accounts receivable valued at 12/1 Date of Transaction
($60,000 x P40.00)
Adjustment to accounts receivable needed..
42,000
42,000
P2,442,000
2,400,000
42,000
March 1, 20x5 (Settlement date):

Cash ($60,000 x P40,60)..
Foreign currency transaction loss
Accounts receivable ($60,000 x P40.70).
2,436,000
6,000
2,442,000
2.
a.
a.1. None transaction date
a.2. P42,000 gain
a.3. P6,000 loss (March 1, 20x5)
b.
b.1. P2,442,000 spot rate on the balance sheet date or current rate on the balance sheet
b.2. P973,200 spot rate on the transaction date or historical rate on the balance sheet
date.
Problem VI
The entries to record these transactions and the effects of changes in exchange rates are
as follows:
November 1, 20x4 (Transaction date):
Equity investment (FVTPL)/Financial Asset
Cash
3,840,000
3,840,000
To record the purchase of shares in Pineapple Computers at a cost of

$96,000 at the exchange rate of P40.
December 10, 20x4 (Transaction date):

Equipment
Cash
636,000
636,000
To record the purchase of equipment costing 12,000 euros at the

exchange rate of P53.

Equity investment (FVTPL)/Financial Asset
Unrealized gain in fair value of equity investment (financial asset)
To record gain in fair value of Pineapple Computers share.
12/31/x4: Revalued Investment and translated at the rate on
the date of revaluation (closing/current rate):
(1,200 units x $100 x P40.50).
11/1/x4: Investment, cost (1,200 units x $80 x P40.00)
Unrealized gain on equity investment
Less: Foreign currency transaction gain equity investment
1,020,000
1,020,000
P4,860,000
3,840,000
P1,020,000
11/1/20x4: Date of transaction (1,200 units x $80 x P40)..

Less: 12/31/20x4: B/S Date (1,200 units x $80 x P40.50).
Other unrealized gain in the fair value of equity investment...
P3,840,000
3,888,000
Foreign currency transaction loss...

Accounts payable [$96,000 x (P53.20 P53)]
48,000
P 972,000
19,200
19,200
To record exchange loss on accounts payable in euros.
Accounts payable valued at 12/31 Balance Sheet

(1,200 x $80 x P53.20)
Accounts payable valued at 12/1 Date of Transaction
(1,200 x $80 x P53.00)
Adjustment to accounts payable needed..
5,107,200
5,088,000
19,200
February 3, 20x5 (Settlement date):

Accounts payable
Foreign currency transaction loss [$96,000 x (P53.80 P53.20)]
Cash ($96,000 x P53.80).
5,107,200
57,600
5,164,800
To record exchange loss on accounts payable in euros and settlement of

accounts payable in euros at the spot rate of P53.80.
Note the following:

The investment in Pineapple Computers, Inc shares is a non-monetary item that is
carried at fair value as it is classified as equity investment through profit or loss (or
a financial asset FVTPL refer PFRS 9). The investment is revalued and translated at
the rate on the date of revaluation, that is, December 31, 20x4.
The equipment is translated at the spot rate at the date of purchase and, being a
non-monetary item, is carried at cost. It is not adjusted for the change in the
exchange rate at balance sheet date. The accounts payable in euros is a monetary
item and is remeasured using the cu rr ent / closing rate at balance sheet date. The
exchange loss is expensed off to the income statement
Problem VII
1.
May 1
Inventory (or Purchases)

Accounts Payable
Foreign purchase denominated in pesos
8,400
June 20
Accounts Payable
Cash
Settle payable.
8,400
July 1
Accounts Receivable
Sales
Foreign sale denominated in pesos
10,000
August 10
Cash
Accounts Receivable
Collect receivable.
10,000
8,400
8,400
10,000
10,000
2.
May 1

Accounts Payable (FC1)
Foreign purchase denominated in yen:
P8,400 / P.0070 = FC1 1,200,000
June 20

Revalue foreign currency payable to
peso equivalent value:
P9,000 = FC1 1,200,000 x P.0075 June 20 spot rate
- 8,400 = FC1 1,200,000 x P.0070 May 1 spot rate
P 600 = FC1 1,200,000 x (P.0075 - P.0070)
Foreign Currency Units (FC1)
Settle payable denominated in FC1.
July 1
Accounts Receivable (FC2)

Sales
Foreign sale denominated in foreign currency 2
(FC 2)
FC3: P10,000 / P.20 = FC2 50,000
August 10

Foreign Currency Transaction Gain
Revalue foreign currency receivable
to U.S. dollar equivalent value:
P 11,000 = FC2 50,000 x P.22 Aug. 10 spot rate
- 10,000 = FC2 50,000 x P.20 July 1 spot rate
P 1,000 = FC2 50,000 x (P.22 - P.20)
Accounts Receivable (FC2
Receive FC 2 in settlement of receivable
8,400
8,400
600
600
9,000
9,000
10,000
10,000
1,000
1,000
11,000
11,000
Problem VIII
1. Denominated in FC
RR Imports reports in Philippine pesos:
Direct
Exchange
Rate
2.
12/1/x4
12/31/x4
1/15/x5
Transaction
Date
Balance Sheet
Date
Settlement
Date
P.70
P.66
P.68
December 1, 20x4
Accounts Payable (FC)
P10,500 = FC 15,000 x P.70
10,500
10,500
December 31, 20x4

Revalue foreign currency payable to
equivalent peso value:
P 9,900 = FC 15,000 x P.66 Dec. 31 spot rate
-10,500 = FC 15,000 x P.70 Dec. 1 spot rate
P 600 = FC 15,000 x (P.66 - P.70)
600
January 15, 20x5

Revalue payable to current peso equivalent
P10,200 = FC 15,000 x P.68 Jan. 15, 20x5, value
- 9,900 = FC 15,000 x P.66 Dec. 31, 20x4, value
P 300 = FC 15,000 x (P.68 - P.66)
300

Foreign Currency Units (FC)
P10,200 = FC 15,000 x P.68
(FC 15,000 x P.70)
600
(FC 15,000 x P.66)
AJE 12/31/x4
1/15/x5 Settlement
10,200
(FC 15,000 x P.68)
10,200
300
10,200
12/1/x4
10,500
Bal 12/31/x4
AJE 1/15/x5
Bal 1/15/ x5
9,900
300
10,200
Bal 1/16/x5
Problem IX
1. December 31, 20x6
Adjust receivable denominated in FC1
to current peso equivalent
and recognize exchange gain:
P83,600 = FC475,000 x P.176 Dec. 31 spot rate
- 73,600 = Preadjusted Dec. 31, 20x6, value
P10,000
2.
600
-0-
10,000

Adjust payable denominated in foreign
currency to current peso equivalent
and recognize exchange gain:
P175,300 = Preadjusted Dec. 31, 20x6, value
- 170,100 = FC2 21,000,000 x P.0081, Dec. 31 spot rate
P 5,200
5,200

Adjust receivable denominated in FC1
1,900
10,000
5,200
1,900
to equivalent peso value on

settlement date:
P85,500 = FC1 475,000 x P.180 20x7 collection date value
- 83,600 = FC1 475,000 x P.176 Dec. 31, 20x6, spot rate
P 1,900 = FC1 475,000 x (P.180 - P.176)
Cash
Accounts Receivable (P)
Collect all accounts receivable.
3.
164,000
85,500

Adjust payable to equivalent peso
value on settlement date:
P163,800 = FC2 21,000,000 x P.0078 20x7 payment date value
- 170,100 = FC2 21,000,000 x P.0081 Dec. 31, 20x6, spot rate
P 6,300 = FC2 21,000,000 x (P.0078 - P.0081)
Accounts Payable (P)
Cash
Payment of all accounts payable.
6,300
86,000
163,800
4.
Transaction gain on FC:

December 31, 20x6
December 31, 20x7
Overall
P10,000
1,900
P11,900
gain
gain
gain
5.
Transaction gain on FC2:

December 31, 20x6
December 31, 20x7
Overall
P 5,200
6,300
P11,500
gain
gain
gain
5.
Overall foreign currency transactions gain:

Gain on FC1 transaction
Gain on FC2 transaction
85,500
164,000
6,300
163,800
86,000
P11,900
11,500
P23,400
CDL could have hedged its exposed position. The exposed positions are only those
denominated in foreign currency units. The accounts receivable denominated in
FC1 could be hedged by selling FC1 in the forward market, thereby locking in the
value of the FC1. The accounts payable denominated in FC2 could be hedged by
buying FC2 in the forward market, thereby locking in the value of the FC2.
Problem X
Accounts
Receivable
Accounts
Payable
Foreign Currency
Transaction
Exchange Loss
Foreign Currency
Transaction
Exchange Gain
Case 1
NA
P16,000(a)
NA
P2,000(b)
Case 2
P38,000(c)
NA
NA
P2,000(d)
Case 3
NA
P27,000(e)
P3,000(f)
NA
Case 4
P6,250(g)
NA
P1,250(h)
NA
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
LCU 40,000 x P.40

LCU 40,000 x (P.40 - P.45)
LCU 20,000 x P1.90
LCU 20,000 x (P1.90 - P1.80)
LCU 30,000 x P.90
LCU 30,000 x (P.90 - P.80)
LCU 2,500,000 x P.0025
LCU 2,500,000 x (P.0025 - P.003)
Multiple Choice Problems

1.
2.
C$1 / P.90 (C$1.11 = P1.00)

P.4895
P.4845
3.
4.
x
x
FC30,000
FC30,000
Gain
P.4845
P.4945
x
x
FC30,000
FC30,000
Loss
January 15
Foreign Currency Units (LCU)
Exchange Loss
Accounts Receivable (LCU)
Collect foreign currency receivable and
recognize foreign currency transaction
loss for changes in exchange rates:
P300,000 = (LCU 900,000 / LCU 3) Jan. 15 value
- 315,000 = Dec. 31 Peso equivalent
P 15,000 Foreign currency transaction loss
P120,000
P140,000
=
=
-105,000
P(35,000)
5.
20x4
P14,685
14,535
P 150
P280,000
-240,000
P 40,000
=
=
300,000
15,000
20x5
P14,535
14,835
P (300)
315,000
July 1, 20x4, Peso equivalent value

December 31, 20x4, Peso equivalent value
(LCU 840,000 / P140,000) = LCU 6 / P1
(LCU 840,000 / 8) = P105,000
December 31, 20x4, Peso equivalent value
6. c P4,000
AJE
Accounts Payable (FCU)

(200,000 x P.4875) 12/10/x4
4,000
(200,000 x P.4675) 12/31/x4

Foreign Exchange Gain
4,000
97,500
93,500
4,000
7. d P27,000 = P6,000 + P20,000 + P1,000

1/20/x4
AJE
90,000
6,000
3/20/x4
Foreign Exchange Loss
96,000
6,000
6,000
Notes Payable (FCU)

7/01/x4
AJE
12/31/x4
20,000

Notes Payable (FCU)
Interest expense
Interest Payable (FCU)
10/15/x4
AJE
11/16/x4
20,000

(FCU500,000 x .10 x 1/2 year)
AJE
12/3/x4
25,000

8. c P5,000
500,000
20,000
520,000
25,000
1,000
26,000
25,000
1,000
1,000
Accounts Receivable (FCU)

100,000
5,000
105,000
Settlement
Accounts Receivable (FCU)

11/16/x4
5,000
105,000
5,000
Note: The receivable is recorded on October 15, 20x4, when the goods were
shipped, not on September 1, 20x4, when the order was received.
9. b P1,000

x4 AJE
500
X5 AJE
1,000
Settlement
4,500
(10,000 x P.60)
4/08/x4
6,000
(10,000 x P.55)
12/31/x4
5,500
(10,000 x P.45)
3/01/x5
4,500
Bal.
1,000
-0-
X5 AJE Accounts Payable (FCU)

10.
1,000
P9,000 = 300,000 FCUs x (P1.65 - P1.62). The foreign currency transaction gain is
computed using spot rates on the transaction date (November 30, 20x4) and the
balance sheet date (December 31, 20x4). The forward exchange rates are not
used because the transaction was not hedged.

11. b
Cash collected (spot rate date of settlement): 900,000 LCU x P.3333 = P300,000
12. d
20x4: (P.5395 P.5445) loss x 70,000 FCU = P350 loss
20x5: (P.5445 - .P5495) loss x 70,000 FCU = P350 loss
13. c
Date of transaction (7/7)
Balance sheet date (8/31)
Foreign exchange currency gain per FCU
Multiplied by: No. of FCU
Foreign exchange currency gain
2.08
2.05
P
.03
350,000
P 10,500
14. b
1.58
1.55
P
.03
375,000
P 11,250
15. b The value of the asset acquired should be the spot rate on the date of transaction, i.e.
P-80. Therefore, the final recorded value of the electric generator should be P40,000 (P.80 x
50,000 FCs)
16. a
Date of transaction
Date of settlement
.75
.80
P
.05
200,000
P 10,000
17. d
.60
.65
P
.05
80,000
P 4,000


18. b
1 .65
1.62
P
.03
300,000
P 9,000
19. b
1.49
1.45
P
.04
500,000
P 20,000
20. a
Date of arrival (P1,000 / 480,000 FC)
Date of departure (P100/50,000 FC)
Foreign exchange currency loss per FCU
Foreign exchange currency loss
P .00208
.00200
P .00008
50,000
P
4

Foreign exchange currency gain per LCU
Multiplied by: No. of LCU

Foreign exchange currency gain per LCU
Multiplied by: No. of LCU
Date of transaction (9/3) : P17,000 / P.85 = 20,000 FC

Date of settlement (10/10)
Foreign exchange currency loss per FC
Multiplied by: No. of FC
Date of transaction (3/1) : P31,000 / P.31 = 100,000 FC

Foreign exchange currency gain per FC


21. b
1.20
1.10
P
.10
5,000
P
500
22. d
1. 08
1.10
P
.02
23,000
P
460
23. a
. 85
.90
P
.05
20,000
P 1,000
24. b
. 31
.34
P
.03
100,000
P 3,000
25. a
.265
.262
P .003
100,000
P
300
26. d
.262
.264
P .002
100,000
P
200
27. c
Foreign exchange currency gain (No. 25)
Foreign exchange currency loss (No. 26)
Overall gain , net
P
_
P
300
200
100
or,
.265
.264
P .001
100,000
P
100
28. c
9/5: Original forward rate or 90-day forward rate
12/2: Date of expiration of the contract (assumed) since the
term spot rate was used
.1850
.1865
.0015
100,000
P
150
P
It should be noted that since, the forward contract was not designated as a hedge, offsetting of gain or loss on
the hedged item and hedging instrument is not allowed. Therefore, the foreign exchange gain due to revaluation
of receivable from foreign currency receivable arising from forward contract will be reported separately, instead
of being netted against the exchanges loss of P300 [(P.1865 P.1835) x 100,000 FCs.]
29. c the question is related to purchase transaction or exposed liability, therefore the
payment of the liability is equivalent to the spot rate on the date of settlement.
30. b
20x4
Date of transaction (12/1/20x4)
Balance sheet date (12/31/20x4)
.0095
.0096
P
.0001
1,000,000
P
100
20x5
Date of settlement (1/10/20x5)
.0096
.0094
P .0002
1,000,000
P
200
31. c
P125,000
140,000
P 15,000
32. b any gain or loss on foreign currency should be considered ordinary.

33. d
3/1: Date of expiration of the contract
P
P
.940
.930
.010

100,000
P 1,000
It should be noted that since, the forward contract was not designated as a hedge, offsetting of gain or loss on
the hedged item and hedging instrument is not allowed. Therefore, the foreign exchange gain due to revaluation
of payable to foreign exchange dealer arising from forward contract will be reported separately, instead of being
netted against the exchanges loss of P1,500 [(P.945 P.93) x 100,000 FCs.]
34. c
It was assumed that the forward contract was designated as a hedging instrument.
Hedged Item: Exposed Asset (Receivable)
1/1: Date of transaction spot rate
12/31: Balance sheet date
.945
.930
P
.015
100,000
P 1,500
P 1,500
Forward Contract/Hedging Instrument:

3/1: Date of expiration of the contract
Net loss
.940
.930
P .010
100,000
P 1,000
P
1,000
500
35. d
It was stated in the requirement that the forward contract will not be used, therefore, only
the loss on hedged item will be recognized.
Hedged Item: Exposed Asset (Receivable)
.945
.930
P
.015
100,000
P 1,500
36. d
Date of transaction (4/8) : P1 / .65 FC (direct quote)
Date of settlement (5/8): P1/ .70 FC (direct quote)
1.54
1.43
P
.11
35,000
P 3,850
37. d the amount of sales should be the spot rate on the date of transaction (or the balance
sheet date - historical rate). I.e., P1.7241 x 10,000 FCs = P17,241.
38. e
P 1.7241
1.8182
P .0941
10,000
P
941
39. b
P
P
P
1.8182
1.6666
.1516
10,000
1,516
40. a since accounts payable is an exposed account meaning their value will fluctuate based
on the spot exchange rates, the value of the accounts payable should be the value on
May 8, i.e., the spot rate of P1.25 (P.15 x 2,000,000 FCs = P2,500,000).
41. c
1.25
1.26
P
0.01
2,000,000
P
20,000
42. e in a two-transaction approach, the recognition of foreign exchange gain or loss is

separate from the settlement, therefore, the amount of accounts payable to be settled
should be the spot rate on the settlement date, i.e., P1.20 (P1.20 x 2,000,000 FCs = P2,400,000)
43. a
P8,000
6,900
P 1,100
44. d
4/8/20x3: Date of transaction
12/31/20x3: Balance sheet date
P 97,000
103,000
P 6,000

P103,000
105,000
P 2,000
45. d
Theories
1. False
2. False
3. True
4. False
5. True
6.
7.
8.
9.
10,
True
False
True
False
True
11.
12.
13.
14.
15.
True
D
C
C
B
16.
17.
18.
19.
20.
d
d
c
b
a
21.
22.
23.
24.
25.
c
b
a
d
b
26.
27.
28.
29.
30.
d
b
d
a
31.
32.
33.
34.
35.
c
d
d
b
b
36
37.
38.
39.
b
d
c
a

Acctg Solution Chapter 19

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Acctg Solution Chapter 19

Încărcat de

Drepturi de autor:

Formate disponibile

Chapter 19

Indirect Exchange Rates

= P8,000 x $1/P40 = $200

4,000 Singapore dollars x P32 = P128,000

1 Singapore dollar = P33.00

1 Singapore Dollar = P32.50

(P33,000 / 1,000 Singapore

(P3,250 / 100 Singapore

P1.00 = .03 Singapore dollars

P1.00 = .03 Singapore dollars

(1,000 Singapore dollars /

(100 Singapore dollars /

Direct Exchange Rate

Indirect Exchange Rate

December 31, 20x4 (Balance sheet date):

March 1, 20x5 (Settlement date):

December 31, 20x4 (Balance sheet date):

March 1, 20x5 (Settlement date):

To record the purchase of shares in Pineapple Computers at a cost of

December 10, 20x4 (Transaction date):

To record the purchase of equipment costing 12,000 euros at the

December 31, 20x4 (Balance sheet date):

11/1/20x4: Date of transaction (1,200 units x $80 x P40)..

Foreign currency transaction loss...

To record exchange loss on accounts payable in euros.

Accounts payable valued at 12/31 Balance Sheet

February 3, 20x5 (Settlement date):

To record exchange loss on accounts payable in euros and settlement of

Note the following:

Inventory (or Purchases)

Inventory (or Purchases)

Foreign Currency Transaction Loss

Accounts Receivable (FC2)

Accounts Receivable (FC2)

December 31, 20x4

January 15, 20x5

Accounts Payable (FC)

(FC 15,000 x P.68)

Accounts Payable (FC2)

Accounts Receivable (FC1)

to equivalent peso value on

Accounts Payable (FC2)

Transaction gain on FC:

Transaction gain on FC2:

Overall foreign currency transactions gain:

LCU 40,000 x P.40

Multiple Choice Problems

C$1 / P.90 (C$1.11 = P1.00)

July 1, 20x4, Peso equivalent value

Accounts Payable (FCU)

Accounts Payable (FCU)

7. d P27,000 = P6,000 + P20,000 + P1,000

Notes Payable (FCU)

Foreign Exchange Loss

Interest Payable (FCU)

Foreign Exchange Loss

Accounts Receivable (FCU)

Accounts Receivable (FCU)

Accounts Payable (FCU)

X5 AJE Accounts Payable (FCU)

used because the transaction was not hedged.

Foreign exchange currency gain

Foreign exchange currency gain

Date of transaction (11/30)