ST.

SCHOLASTICA’S COLLEGE
Leon Guinto, Manila

ADVANCED ACCOUNTING 3 PROF. ROEL E. HERMOSILLA

QUIZ 1 - PART 2FOREIGN TRANSACTIONS

Instructions: Solve each problem in your worksheet and present your computations in GOOD FORM.
NO SOLUTIONS, NO CREDITS.
FINAL ANSWERS
1 6 11 16 21 26
2 7 12 17 22 27
3 8 13 18 23 28
4 9 14 19 24 29
5 10 15 20 25 30

1. According to IAS21 The effects of changes in foreign exchange rates , at which rate should an
entity's non-current assets be translated when its functional currency figures are being translated
into a different presentation currency?
a. The historical exchange rate
b. The closing rate
c. The average rate
d. The spot exchange rate

2. According to IAS21 The effects of changes in foreign exchange rates , exchange differences
should be recognised either in profit or loss or in other comprehensive income. Are the following
statements about the recognition of exchange differences in respect of foreign currency
transactions reported in an entity's functional currency true or false according to IAS21?

(1) Any exchange difference on the settlement of a monetary item should be recognised in
profit or loss.
(2) Any exchange difference on the translation of a monetary item at a rate different to that
used at initial recognition should be recognised in other comprehensive income.
Statement (1) Statement (2)

a. False False
b. False True
c. True False
d. True True

3. K Trading buys goods from X Inc., Hongkong, payable in Hongkong dollars at a credit term of
60 days. On June 30, 2022, the unadjusted trial balance of K reflects a payable to X representing
purchase of goods worth HK$250,000 when Hongkong dollars was going at P1/HK$. What will be
K exchange gain or loss on June 30, 2022, if the prevailing exchange rate is HK$ 0.975/P?
A. P25,000 loss
B. P6,250 gain
C. P90,909 gain
D. P6,410.25 loss

4. D Incorporated, a Pinoy corporation bought machine parts from K Company of U.S. on March 1,
2022 for $30,000 U.S. dollars, when the spot rate for dollars was P40.89. D’s year end was March
31, 2022 when the spot rate for U.S. dollars was P40.84. D bought 30,000 dollars and paid the
invoice on April 20, 2022 when the spot rate was P40.94. How much should be shown in D’s
income statement as foreign exchange gain or loss for the years ended March 31, 2022 and
2023?
A. P0; P0
B. P1,500 gain; P3,000 loss
C. P1,500 loss; P3,000 gain
D. P0; P1,500 loss
 Page 2 of 5

5. The ratio at which the currencies of two countries are exchanged at a particular time
a. Foreign currency
b. Closing rate
c.Foreign entity
d. Exchange rate

6. The currency other than the reporting currency of an enterprise is

a. Foreign currency
b. Foreign currency loan
c.Foreign operation
d. Closing rate

7. In foreign exchange transactions, the ratio at which the currencies of two countries are
exchanged at a particular time
a. Closing rate
b. Spot rate
c.Exchange rate
d. Forward rate

8. The exchange rate on a particular day for the exchange of foreign currencies on that day
(which approximates the interbank guiding rate)
a. Spot rate
b. Closing rate
c. Buying rate
d. Fixed rate.

9. The exchange rate available in terms of an agreement for the exchange of two currencies at a
future date:
a. Spot rate
b. Forward rate.
c.Bank rate.
d. Closing rate

10. On October 1, 2022, Stevens Company, a U.S. company, contracted to purchase foreign goods
requiring payment in francs one month after their receipt in Steven’s factory. Title to the goods
passed on December 15, 2022. The goods were still in transit on December 31, 2022. Exchange
rates were 1 dollar to 22 francs, 20 francs, and 21 francs on October 1, December 15, and
December 31, 2022, respectively. Stevens should account for the exchange rate fluctuations in
2022 as
a. An extraordinary gain.
b. An extraordinary loss.
c. A loss included in net income before extraordinary items.
d. A gain included in net income before extraordinary items.

11. On October 2, 2021, Louis Co., a U.S. company, purchased machinery from Stroup, a German
company, with payment due on April 1, 2022. If Louis’ 2021 operating income included no foreign
exchange gain or loss, then the transaction could have
a. Resulted in an extraordinary gain.
b. Been denominated in U.S. dollars.
c.Caused a foreign currency gain to be reported as a contra account against machinery.
d. Caused a foreign currency translation gain to be reported as a separate component of
stockholders’ equity.

12. An indication that a foreign subsidiary’s functional currency is the currency of the parent
company is provided by:
a. Local financing of subsidiary operations.
b. A high volume of intercompany transactions.
c.Expenses that are primarily local costs.
d. Sales prices set by local competition in the subsidiary’s country.
 Page 3 of 5
13. A U.S. parent company has a subsidiary in Germany whose functional currency is the German
mark. The U.S. dollar from the subsidiary’s viewpoint is:
a. A local currency.
b. A foreign currency.
c. A recording currency.
d. d. A common currency.

14. The functional currency of Dahl Inc.’s subsidiary is the French franc. Dahl borrowed French
francs as a partial hedge of its investment in the subsidiary. In preparing consolidated financial
statements, Dahl’s debit balance of its cumulative translation adjustment exceeded is exchange
gain on the borrowing. How should the cumulative translation adjustment and the exchange gain
be reported in Dahl’s consolidated financial statements?
a. The cumulative translation adjustment should be netted against the exchange gain and the
excess cumulative translation adjustment should be reported in the stockholders’ equity
section of the balance sheet.
b. The cumulative translation adjustment should be netted against the exchange gain and the
excess cumulative translation adjustment should be reported in the income statement.
c. The cumulative translation adjustment should be reported separately in the stockholders’
equity section of the balance sheet and the exchange gain should reported in the income
statement.
d. The cumulative translation adjustment should be reported in the income statement and the
exchange gain should be reported separately in the stockholders’ equity section of the
balance sheet.

15. A credit balancing item resulting from the process of restating a foreign entity’s financial
statement from the local currency unit to U.S. dollars should be included as a (an):
a. Separate component of stockholders’ equity.
b. Component of income from continuing operations.
c. Deferred credit.
d. Extraordinary item.

16. QRS., Inc. is the foreign subsidiaries of a Phil. Corp. STY Corporation. Which account(s) in QRS.’
subsidiary trial balance should not be translated to pesos in terms of the current rate of
exchange.
a. Long-term liabilities incurred several years ago.
b. Long-term receivables obtained several years ago.
c.Sales.
d. Intercompany accounts payable incurred during the year.

17. XYZ (Phils.), Inc. is the parent company of XYZ (HK) Ltd. XYZ (Phils.), Inc. borrowed HK dollars
from a Hongkong subsidiary. In preparing consolidated financial statements, XYZ (Phils.), Inc.’s
translation loss on its investment in XYZ (HK) Ltd., exceeded its exchange gain on the borrowing.
How should the effects of the loss and gain be reported in XYZ (Phils.) Inc.’s consolidated
financial statements?
a. The translation loss less the exchange gain is reported in the income statement.
b. The translation loss less the exchange gain is reported separately in the stockholders’ equity
section of the balance sheet.
c. The translation loss is reported separately in the stockholders’ equity section of the balance
sheet and the exchange gain is reported in the income statement.
d. The translation loss is reported in the income statement and exchange gain is reported
separately in the stockholders’ equity section of the balance sheet.

18. When translating an amount for fixed assets shown on the statement of financial position of a
foreign subsidiary, the appropriate rate of translation is the
a. Average exchange rate for the current year.
b. Current exchange rate
c.Average exchange rate over the life of each fixed asset.
d. Historical exchange rate.
 Page 4 of 5
19. In the conversion of the trial balance of a foreign branch to pesos, the historical rate of
exchange should be applied to:
a. Inventories
b. Revalued property plant and equipment.
c. Sales
d. Importation of capital equipment covered by forward exchange contracts.

20. In April 2022, LOP, Inc., an exporter sold to a foreign buyer handicrafts amounting to
US$15,000, payable in September 2022. At the time of sale in April, the exchange rate was US$1:
P50; but at time of payment in September, it was already US$1: P52. The gain should be
included as a:
a. Transaction gain reported as a component of income from continuing operations.
b. Transaction gain reported as a separate component of stockholders’ equity.
c. Translation gain reported as a separate component of stockholders’ equity.
d. Translation gain reported as a component of income from continuing operations.

21. Exchange differences arising from short-term foreign currency items should be:
a. Part of additional paid-in capital.
b. Deferred and amortized over the life of the obligation.
c. Separately shown in the equity section of the balance sheet “as accumulated translation
adjustment.”
d. Charged against income of the current year.

22. Which among the following statements is not valid with respect to accounting for changes in
the foreign exchange rates?
a. Current practice is the same with respect to the accounting treatment of gains or losses
arising from foreign currency transactions not settled at the balance sheet date.
b. At each balance sheet, foreign currency monetary items that results from transactions should
be reported at the closing rate except when a forward exchange contract is entered into.
c. Any exchange differences arising on other charges to stockholders’ equity in the foreign entity
are recognized in stockholders’ equity.
d. A foreign currency transaction is recorded as of the occurrence of the transaction normally
using the exchange rate on that date.

23. RST Exports, Inc. exported baskets to the U.S.A. valued at US$5,000. The export thus resulted
in a receivable fixed in terms of the US dollars that would be received. The peso-dollar exchange
rate deteriorated so that RST incurred a loss. This loss should be included as a:
a. Translation loss reported as component of income from continuing operations.
b. Transaction loss reported as a component of income from continuing operations.
c. Translation loss reported as a separate component of stockholders’ equity.
d. Transaction loss reported as a separate component of stockholders’ equity.

24. On December 1, 2016, Pepper Corporation entered into forward exchange contracts for
speculative purposes in anticipation for a gain to sell US $10,000 in 90 days for delivery on March
1, 2017 for P40.25. The fiscal year-end for Pepper Corporation is December 31. The exchange
rates available on various dates are as follows:

1-Dec-16 31-Dec-16 1-Mar-17

SPOT RATE P40.00 P40.25 P40.35
30 DAY Forward Rate 40.10 40.35 40.50
60 DAY Forward Rate 40.15 40.40 40.70
90 DAY Forward Rate 40.25 40.45 40.65
120 DAY Forward Rate 40.30 40.50 40.70

How much is the Foreign exchange gain or loss on December 31, 2016?
A. (1,500)
B. 1,500
C. 1,000
D. (1,000)
 Page 5 of 5

25. How much is the ForEx gain or loss on March 1, 2017?

A. 0
B. (500)
C. 500
D. (1,000)

reh/cde