10 Jan Assume that all three companies

Module 6 exam 3

Question 1 (16 points)

Question 1 Unsaved

On September 1, 2014, Bylin Company purchased merchandise from Himeji Company of Japan for 20,000,000 yen payable on October 1, 2014. The spot rate for yen was $0.0079 on September 1, and the spot rate was $0.0077 on October 1. The purchase was paid on October 1, 2014.

Part 1: Did the U.S. dollar strengthen or weaken from September to October and what are the implications for Bylin’s business?

Part 2: What journal entry did Bylin record on September 1, 2014?

Part 3: What journal entry did Bylin record on October 1, 2014

Question 2

Tank Corporation, a U.S. manufacturer, has a June 30 fiscal year end. Tank sold goods to their customer in Columbia on May 27, 2014 for 18,000,000 Columbian pesos. The customer agreed to pay pesos in 60 days. When the customer wired the funds to Tank on July 26, Tank held them in their bank account until July 31 before selling them and converting them to U.S. dollars. The following exchange rates apply:

May 27 $0.00055

June 30 $0.00052

July 26 $0.00058

July 31 $0.00056

Record the journal entries related to the dates listed above. If no entry is required, state “no entry.”

Question 3 (16 points)

Charin Corporation, a U.S. corporation, imports and exports small electronics. On December 1, 2014, Charin purchased components from an Egyptian manufacturer amounting to 500,000 Egyptian pounds. The purchase is payable in Egyptian pounds. At December 30, Charin wanted to take advantage of favorable exchange rates but did not have the full amount required to pay off the entire amount. Charin wired the funds to pay off half of the balance owed and expected to pay the remaining balance on January 3, 2015. Charin paid the remaining balance on January 3, 2015.

The respective exchange rates were as follows:

December 1, 2014 1 pound = $.170

December 30, 2014 1 pound = $.165

December 31, 2014 1 pound = $.175

January 3, 2015 1 pound = $.180

Document the journal entries related to these transactions for the four dates shown. If no entry is required, record “no entry.

Question 4

Question 4 Unsaved

On June 1, 2014, Dapple Industries purchases an option contract for $5,000 on 10,000 gallons of aviation gas to minimize its purchasing cost price exposure. At the time, the market price is $2.50 per gallon and the option price of $2 per gallon will expire 6 months later. Dapple can exercise the option at its discretion. When Dapple prepares quarterly reports on June 30, Dapple is still holding the option. On June 30, the market price of aviation gas is $4.50 per gallon. The option is to be settled net.

On August 1, Dapple exercises the option when the gas market price is $5.00 per gallon and purchases 40,000 gallons of gas. On August 15, Dapple uses all of the gas on a charter flight.

What are Dapple’s journal entries with regard to the aviation gas option? Assume this is a cash flow hedge. Ignore the time value of money.

Question 5 (16 points)

On November 1, 2013, Mayberry Corporation, a U.S. corporation, purchased from Cantata Corporation, a Mexican company, some machinery that cost 1,000,000 pesos. The invoice was payable in pesos on January 30, 2014. To hedge against rapid changes in the peso, Mayberry entered into a forward contract on November 1, 2013 with AB Trader & Company, a US brokerage and investment firm. The contract specified that Mayberry would buy 1,000,000 pesos from AB Trader at $0.084 per peso for settlement on January 30, 2014.

Assume that all three companies are subject to the same accounting standards and have December 31st year-ends. The spot rates for pesos on November 1, December 31, and January 30, are $0.082, $0.080, and $0.089, respectively. The 30-day forward rate for pesos on December 31, 2013 is $0.083. The forward contract is not settled net.

Record General Journal entries for Mayberry Corporation on November 1, December 31, and January 30. If no entry is required on a particular date, indicate “no entry” in the General Journal. This is a fair value hedge.