Case 1.

On November 12 20x4, DD purchased goods from a foreign company at a price of LCU 40,000
when the direct exchange rate was 1 LCU = P.45. The account has not been settled as of December 31,
20x4, when the exchange rate has decreased to 1 LCU = P.40.

Case 2. On November 28, 20x4, DD sold goods to a foreign entity at a price of LCU 20,000 when the
direct exchange rate was 1 LCU = P1.80. The account has not been settled as of December 31, 20x4,
when the exchange rate has increased to 1 LPU = P1.90.

Case 3. On December 2, 20x4, DD purchased goods from a foreign company at a price of LCU 30,000
when the direct exchange rate was 1 LPU = P.80. The account has not been settled as of December 31,
20x4, when the exchange rate has increased to 1 LCU = P1.90.

Case 4. On December 12, 20x4, DD sold goods to foreign entity at a price of LCU 2,500,000 when the
direct exchange rate was 1 LCU = P.003. The account has not been settled as of December 31, 20x4,
when the exchange rate has decreased to 1 LCU = P.0025.

Required: Provide the December 31, 20x4, year-end balance on DD’s records for each of the following
applicable items:

Accounts Accounts Foreign Currency Foreign Currency

Receivable Payable Transaction Exchange Transaction Exchange
Loss
Gain
Case 1 NA $16,000 NA $2,000
(LCU 40,000 x (LCU 40,000
x ($0.40 -
$0.40) $0.45))

Case 2 $38,000 NA NA $2,000

(LCU 20,000 x (LCU 20,000
x $1.90
$1,90) (-) $1.80)

Case 3 NA $27,000 $3,000 NA

(LCU 30,000 x (LCU 30,000 x
$0.90) $0.90 (-) $0.80)

Case 4 $6.250 NA $1,250 NA

(LCU 2,500 x (LCU 2,500,000 x
$0.0025) ($0.0025 (-) $0.003

Multiple Choice-Problems
1. If 1 Canadian dollar can be exchanged for 90 cents of Philippine peso, what fraction should be
used to compute the indirect quotation of the exchange rate expressed in Canadian dollar?

A. 1.10/1.
B. 1/1.10.
C. 1/.90.
D. .90/1.

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 2. DD Inc., a Philippine company, bought machine parts from a foreign country on March 1 20x4, for
30,000 foreign currency units (FCU), when the spot rate for FCU was P.4895. DD'S year-end was
March 31, when the spot rate was P.4845. On April 20, 20x5, DD paid the liability with 30,000
FCUs at a rate of P.4945. DD's income statements should report a foreign exchange gain, or the
years ended March 31, 20X4 and 20x5 of:
20x4 20x5 20x4 20x5
A. P -0- -0- C. P150 loss P -0-
B. P -0- P150 loss D. P150 gain P300 loss

3. Detroit based Auto Corporation, purchased ancillaries from a foreign firm on December 1 20x4,
for 1,000,000 foreign currencies (FCs), when the spot rate for 1 FC was P.0095. On December
31, 20x4, the spot rate stood at P.0096. On January 10, 20x5 Auto paid 1,000,000 FCs acquired
at a rate of P.0094. Auto's income statements should report a foreign exchange gain or loss for
the years ended December 31, 20x4 and 20x5 of:
20x4 20x5 20x4 20x5
A. -0- -0- C. P -0- P100 gain
B. P100 loss P200 gain D. P100 gain P100 loss

4. On November 1, 20x4, Denver Company borrowed 500,000 local currency units (LCU) from a
foreign lender evidenced by an interest-bearing note due on November 1, 20x5, which is
denominated in the currency of the lender. The peso equivalent of the note principal was as
follows: 7/1/x4 (date borrowed) .............. P100,000
12/31/x4(year-end) .................... 125,000
7/1/x5 (date repaid) .................. 140,000
In its income statement for 20x5, what amount should Denver include as a foreign exchange gain
or loss on the note principal?
A. 15,000 GAIN C. 15,000 LOSS
B. 25,000 GAIN D. 40,000 LOSS

5. Company's receivable from a foreign customer is denominated in the customer's local currency.
This receivable of 900,000 local currency Units (LCU) has been translated into P315,000 on MM's
December 31, 20x4, balance sheet. On January 15, 20x5, the receivable was collected in full
when the exchange rate was 3 LCU to P1. The journal entry MM should make to record the
collection of this receivable is:
a. Foreign Currency Units 300T (debit)
Accounts Receivable 300T (credit
B. Foreign Currency Units 300T (dr)
Exchange LOSS 15T (dr).
Accounts Receivable 315T (cr)
C. Foreign Currency Units 300T (dr)
Deferred Exchange Loss 15T (dr)
Accounts Receivable 315T (cr)
D. Foreign Currency Units 315T (dr)
Accounts Receivable 315T (cr)

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