Multiple-Choice Questions on Foreign Currency Transactions

Jon-Jan Restaurants purchased green rice, a special variety of rice, from China for 100,000 renminbi on November 1, 20X8. Payment is due on January 30, 20X9. On November 1, 20X8, the company also entered into a 90-day forward contract to purchase 100,000 renminbi. The forward contract is not designated as a hedge. The rates were as follows:

Date	Spot Rate	Forward Rate
November 1, 20X8	$0.120	$0.126 (90 days)
December 31, 20X8	0.124	0.129 (30 days)
January 30, 20X9	0.127

Required

Select the correct answer for each of the following questions.

1. The entry on November 1, 20X8, to record the forward contract includes a

a. Debit to Foreign Currency Receivable from Exchange Broker, 100,000 renminbi.

b. Debit to Foreign Currency Receivable from Exchange Broker, $12,600.

c. Credit to Premium on Forward Contract, $600.

d. Credit to Dollars Payable to Exchange Broker, $12,600.

2. The entries on December 31, 20X8, include a

a. Debit to Financial Expense, $300.

b. Credit to Foreign Currency Payable to Exchange Broker, $300.

c. Debit to Foreign Currency Receivable from Exchange Broker, $300.

d. Debit to Foreign Currency Receivable from Exchange Broker, $12,600.

3. The entries on January 30, 20X9, include a

a. Debit to Dollars Payable to Exchange Broker, $12,000.

b. Credit to Cash, $12,600.

c. Credit to Premium on Forward Contract, $600.

d. Credit to Foreign Currency Receivable from Exchange Broker, $12,600.

4. The entries on January 30, 20X9, include a

a. Debit to Financial Expense, $400.

b. Debit to Dollars Payable to Exchange Broker, $12,600.

c. Credit to Foreign Currency Units (renminbi), $12,600.

d. Debit to Foreign Currency Payable to Exchange Broker, $12,700.

5. The entries on January 30, 20X9, include a

a. Debit to Foreign Currency Units (renminbi), $12,700.

b. Debit to Dollars Payable to Exchange Broker, $12,700.

c. Credit to Foreign Currency Transaction Gain, $100.

d. Credit to Foreign Currency Receivable from Exchange Broker, $12,600.

Jon-Jan Restaurants purchased green rice, a special variety of rice, from China for 100,000 renminbi on November 1, 20X8. Payment is due on January 30, 20X9. On November 1, 20X8, the company also entered into a 90-day forward contract to purchase 100,000 renminbi. The forward contract is not designated as a hedge. The rates were as follows:

Date	Spot Rate	Forward Rate
November 1, 20X8	$0.120	$0.126 (90 days)
December 31, 20X8	0.124	0.129 (30 days)
January 30, 20X9	0.127

Required

Select the correct answer for each of the following questions.

1. The entry on November 1, 20X8, to record the forward contract includes a

a. Debit to Foreign Currency Receivable from Exchange Broker, 100,000 renminbi.

b. Debit to Foreign Currency Receivable from Exchange Broker, $12,600.

c. Credit to Premium on Forward Contract, $600.

d. Credit to Dollars Payable to Exchange Broker, $12,600.

2. The entries on December 31, 20X8, include a

a. Debit to Financial Expense, $300.

b. Credit to Foreign Currency Payable to Exchange Broker, $300.

c. Debit to Foreign Currency Receivable from Exchange Broker, $300.

d. Debit to Foreign Currency Receivable from Exchange Broker, $12,600.

3. The entries on January 30, 20X9, include a

a. Debit to Dollars Payable to Exchange Broker, $12,000.

b. Credit to Cash, $12,600.

c. Credit to Premium on Forward Contract, $600.

d. Credit to Foreign Currency Receivable from Exchange Broker, $12,600.

4. The entries on January 30, 20X9, include a

a. Debit to Financial Expense, $400.

b. Debit to Dollars Payable to Exchange Broker, $12,600.

c. Credit to Foreign Currency Units (renminbi), $12,600.

d. Debit to Foreign Currency Payable to Exchange Broker, $12,700.

5. The entries on January 30, 20X9, include a

a. Debit to Foreign Currency Units (renminbi), $12,700.

b. Debit to Dollars Payable to Exchange Broker, $12,700.

c. Credit to Foreign Currency Transaction Gain, $100.

d. Credit to Foreign Currency Receivable from Exchange Broker, $12,600.

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