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Use The Following Information For The Next Three Questions:: Activity 3.2

The document provides information and questions related to foreign currency transactions and financial statements of entities with foreign operations. It includes details of asset and liability balances, exchange rates, revenue and expense amounts in foreign currencies. The questions require calculations of translated and remeasured amounts based on given exchange rates to determine transaction gains/losses, income, assets, liabilities and equity balances.

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Tine Vasiana Duerme
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470 views2 pages

Use The Following Information For The Next Three Questions:: Activity 3.2

The document provides information and questions related to foreign currency transactions and financial statements of entities with foreign operations. It includes details of asset and liability balances, exchange rates, revenue and expense amounts in foreign currencies. The questions require calculations of translated and remeasured amounts based on given exchange rates to determine transaction gains/losses, income, assets, liabilities and equity balances.

Uploaded by

Tine Vasiana Duerme
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Activity 3.

Direction: Provide what is asked. Show your solution.

Use the following information for the next three questions:


Entity A has just started its operations on January 1, 20x1. On this date, Entity A’s equity consisted of ₱2M share capital, which were
issued also on this date. Entity A’s functional currency is the Philippine peso (₱). However, it wishes to present its 20x1 financial
statements into Japanese yen (¥). The following information was gathered on December 31, 20x1, after a year of operations.

Total assets ₱10M

Total liabilities ₱5M


Share capital 2M
Retained earnings 3M
Total liabilities and equity ₱10M

Income ₱7M
Expenses (4M)
Profit ₱3M

Relevant exchange rates:


January 1, 20x1 (historical rate for the share capital) ₱1: ¥2
Average rate ₱1: ¥3
December 31, 20x1 (closing rate) ₱1: ¥4

1. How much is the translated total assets?________________

2. How much is the translated total equity? ________________

3. How much is the translated profit or loss?________________

Use the following information for the next six questions:


During July 20x6, Precious Corporation had the following transactions with foreign businesses:

Date Nature of Transaction Billing Currency Exchange rate (Direct)


Vendor A:
7/1/x6 Imported merchandise costing 100,000 rupees
from Pakistan wholesaler Rupee P 0.82
7/10/x6 Paid 40% of amount owed 0.83
7/31/x6 Paid remaining amount owed 0.78

Customer A
7/15/x6 Sold merchandise for 50,000 pound to Syrian
Wholesaler Syrian Pound P 0.95
7/20/x6 Received 20% payment 0.90
7/30/x6 Received remaining amount owed 0.91

4. What is the capitalized cost of inventory purchase from the Pakistan wholesaler? _________________
5. What is the foreign exchange gain or loss on July 10, 20x6 transaction arising from the Pakistan wholesaler? ________________
6. What is the foreign exchange gain or loss on July 31, 20x6 transaction arising from the Pakistan wholesaler? ________________
7. What is the reportable sales amount in the income statement in 20x6? ________________
8. What is the foreign exchange gain or loss on July 20, 20x6 transaction arising from the Syrian wholesaler? _______________
9. What is the foreign exchange gain or loss on July 30, 20x6 transaction arising from the Syrian wholesaler? _____________

10. Hunt Co. purchased merchandise for £300,000 from a vendor in London on November 30, 20x6. Payment in British pounds was
due on January 30, 20x7. The exchange rates to purchase one pound were as follow:

November 30, 20x6 December 31, 20x6 January 30, 20x7


Spot-rate P 71.11 P 71.00 P 71.50
30-day rate 75.00 73.00 72.00
60-day rate 74.50 75.00 75.12

In its income statement, what amount should Hunt report as foreign exchange transaction gain (loss)? ________________
11. On July 1, 20x6, Magnolia Company purchases 1,000 pounds of chocolate for 50,000 foreign currencies (FCS), payable in 60 days.
On July 1, a FC is worth P 27.29; by August 30, the day of payment, the FC is worth P 27.00. The 60-day forward rate on July 1 is 1 FC
= P 28.00. Magnolia Company should record the cost of the chocolate as: _________________

12. The accounts of Ilocano International, a Philippine corporation, show P 81,300 accounts receivable and P 38,900 accounts payable
at December 31, 20x6, before adjusting entries are made. In analyzing the balances reveals the following:

Accounts receivable:
Accounts receivable in Philippine pesos P 28,500
Receivable denominated in 20,000 foreign currency 1 11,800
Receivable denominated in 25,000 foreign currency 2 41,000
Total P 81,300

Accounts payable:
Payable denominated in Philippine pesos P 6,850
Payable denominated in 10,000 foreign currency 3 7,600
Payable denominated in 15,000 foreign currency 2 24,450
Total P 38,900

Current exchange rates for foreign currency 1, foreign currency 3, and foreign currency 3 at December 31, 20x6 are P 0.66, P
1.65 and P 0.70, respectively. Determine the net exchange gain or loss that should be reflected in Ilocano’s income statement
for 20x6 from year-end exchange adjustments. ____________________

Use the following information for the next 10 questions.


A Philippine company a foreign subsidiary on January 1, 20x4. The subsidiary’s trial balances for January 1 and December 31, 20x4 on
presented below, in FCs (foreign currencies)

January 1, 20x4 December 31, 20x4


Balances [Dr. (Cr.)] balances [Dr. (Cr.)]
Cash receivables FC 37,000 FC 20,000
Plant & equipment, net 400,000 435,000
Liabilities (172,000) (165,000)
Capital stock (115,000) (115,000)
Retained earnings, January 1 (150,000) (150,000)
Dividends 10,000
Sales revenue (800,000)
Operating expenses 765,000

New plant & equipment of FC 85,000 was acquired in 20x4. Operating expense include FC 50,000 depreciation on plant & equipment,
of which FC 5,000 is related to plant & equipment purchased in 20x4.

Exchange rates (P/FC) are as follows:


January 1, 20x4 P 1.45
Plant & equipment acquired 1.40
Average for 20x4 1.30
Dividends declared 1.26
December 31, 20x4 1.25

For questions 13- 17, assume that the subsidiary’s functional currency is the FC.

13. What is the transaction gain or loss for 20x4? ________________


14. What are translated total assets for the subsidiary at December 31, 20x4? _____________
15. What are translated 20x4 operating expenses for the subsidiary? ___________
16. What is the translated 20x4 net income for the subsidiary? _________
17. What is the subsidiary’s translated December 31, 20x4 retained earnings balance? _____________

For questions 18 – 22, assume that the subsidiary’s functional currency is the Philippine peso

18. What is the remeasurement gain or loss for 20x4? ________________


19. What are remeasured total assets for the subsidiary at December 31, 20x4? _____________
20. What are remeasured 20x4 operating expenses for the subsidiary? _____________
21. What is remeasured 20x4 net income for the subsidiary? _______________
22. What is the subsidiary’s remeasured December 31, 20x4 retained earnings balance? ______________

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