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A) Match the items in the left-hand column with the descriptions/explanations in the right-hand column. Items Descriptions/Explanations A. Exchange rate for immediate delivery of currencies. B. Imports and exports whose prices are stated in a foreign currency. C. The primary currency used by a company for performing its major financial and operating functions. D. U.S. companies prepare their financial statements in U.S. dollars. E. 1 European euro equals $0.65. F. A forward contract is entered into when receivables denominated in European euros exceed payables denominated in that currency. G. Accounts that are fixed in terms of foreign currency units. H. 1 U.S. dollar equals 99 Japanese yen. I. Spot rate on the entity's balance sheet date. J. In an export or import transaction, the date that foreign currency units are received or paid, respectively. K. A forward contract is entered into when payables denominated in British pounds exceed receivables denominated in that currency. L. Reported when receivables are denominated in European euros and the euro strengthens compared to the U.S. dollar. M. A forward contract is entered into on May 1 that hedges an import transaction to occur on July 1. N. Forward contract in which no hedging is intended. O. Reported when payables are denominated in Swiss francs and the franc strengthens compared to the U.S. dollar. 1. Direct exchange rate 2. Indirect exchange rate 3. Managing an exposed net asset position 4. Spot rates 5. Current rates 6. Foreign currency transaction gain 7. Foreign currency transaction loss 8. Foreign currency transactions 9. Hedging a firm commitment 10. Functional currency 11. Speculating in a foreign currency 12. Managing an exposed net liability position 13. Settlement date 14. Denominated 15. Reporting currency

A) Match the items in the left-hand column with the descriptions/explanations in the right-hand column. Items Descriptions/Explanations A. Exchange rate for immediate delivery of currencies. B. Imports and exports whose prices are stated in a foreign currency. C. The primary currency used by a company for performing its major financial and operating functions. D. U.S. companies prepare their financial statements in U.S. dollars. E. 1 European euro equals $0.65. F. A forward contract is entered into when receivables denominated in European euros exceed payables denominated in that currency. G. Accounts that are fixed in terms of foreign currency units. H. 1 U.S. dollar equals 99 Japanese yen. I. Spot rate on the entity's balance sheet date. J. In an export or import transaction, the date that foreign currency units are received or paid, respectively. K. A forward contract is entered into when payables denominated in British pounds exceed receivables denominated in that currency. L. Reported when receivables are denominated in European euros and the euro strengthens compared to the U.S. dollar. M. A forward contract is entered into on May 1 that hedges an import transaction to occur on July 1. N. Forward contract in which no hedging is intended. O. Reported when payables are denominated in Swiss francs and the franc strengthens compared to the U.S. dollar. 1. Direct exchange rate 2. Indirect exchange rate 3. Managing an exposed net asset position 4. Spot rates 5. Current rates 6. Foreign currency transaction gain 7. Foreign currency transaction loss 8. Foreign currency transactions 9. Hedging a firm commitment 10. Functional currency 11. Speculating in a foreign currency 12. Managing an exposed net liability position 13. Settlement date 14. Denominated 15. Reporting currency

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A) Match the items in the left-hand column with the descriptions/explanations in the right-hand column. Items Descriptions/Explanations 1. Direct exchange rate 2. Indirect exchange rate 3. Managing an exposed net asset position 4. Spot rates 5. Current rates 6. Foreign currency transaction gain 7. Foreign currency transaction loss 8. Foreign currency transactions A. Exchange rate for immediate delivery of currencies. B. Imports and exports whose prices are stated in a foreign currency. C. The primary currency used by a company for performing its major financial and operating functions. D. U.S. companies prepare their financial statements in U.S. dollars. E. 1 European euro equals $0.65. F. A forward contract is entered into when receivables denominated in European euros exceed payables denominated in that currency. G. Accounts that are fixed in terms of foreign currency units. H. 1 U.S. dollar equals 99 Japanese yen. I. Spot rate on the entity's balance sheet date. J. In an export or import transaction, the date that foreign currency units are received or paid, respectively. K. A forward contract is entered into when payables denominated in British pounds exceed receivables denominated in that currency. L. Reported when receivables are denominated in European euros and the euro strengthens compared to the U.S. dollar. 9. Hedging a firm commitment 10. Functional currency 11. Speculating in a foreign currency 12. Managing an exposed net liability position 13. Settlement date 14. Denominated 15. Reporting currency M. A forward contract is entered into on May 1 that hedges an import transaction to occur on July 1. N. Forward contract in which no hedging is intended. O. Reported when payables are denominated in Swiss francs and the franc strengthens compared to the U.S. dollar. B) Explain the relation between ethics and financial statement fraud by giving examples.
Transcribed Image Text:A) Match the items in the left-hand column with the descriptions/explanations in the right-hand column. Items Descriptions/Explanations 1. Direct exchange rate 2. Indirect exchange rate 3. Managing an exposed net asset position 4. Spot rates 5. Current rates 6. Foreign currency transaction gain 7. Foreign currency transaction loss 8. Foreign currency transactions A. Exchange rate for immediate delivery of currencies. B. Imports and exports whose prices are stated in a foreign currency. C. The primary currency used by a company for performing its major financial and operating functions. D. U.S. companies prepare their financial statements in U.S. dollars. E. 1 European euro equals $0.65. F. A forward contract is entered into when receivables denominated in European euros exceed payables denominated in that currency. G. Accounts that are fixed in terms of foreign currency units. H. 1 U.S. dollar equals 99 Japanese yen. I. Spot rate on the entity's balance sheet date. J. In an export or import transaction, the date that foreign currency units are received or paid, respectively. K. A forward contract is entered into when payables denominated in British pounds exceed receivables denominated in that currency. L. Reported when receivables are denominated in European euros and the euro strengthens compared to the U.S. dollar. 9. Hedging a firm commitment 10. Functional currency 11. Speculating in a foreign currency 12. Managing an exposed net liability position 13. Settlement date 14. Denominated 15. Reporting currency M. A forward contract is entered into on May 1 that hedges an import transaction to occur on July 1. N. Forward contract in which no hedging is intended. O. Reported when payables are denominated in Swiss francs and the franc strengthens compared to the U.S. dollar. B) Explain the relation between ethics and financial statement fraud by giving examples.
C) On January 1, 2018, ABC Company pays $70,000 for a 10 percent interest in XYZ Company. On that date, XYZ has a book value of $600,000, although equipment, which has a five-year life, is undervalued by $100,000 on its books. Little Company's stock is closely held by a few investors and is traded only infrequently. Because fair values are not readily available on a continuing basis, the investment account is appropriately maintained at cost. On January 1, 2019, ABC acquires an additional 30 percent of XYZ Company for $264,000. This second purchase provides ABC the ability to exert significant influence over XYZ and ABC will now apply the equity method. At the time of this transaction, XYZ's equipment with a four-year life was undervalued by only $80,000. During these two years, XYZ reported the following operational results: Year 2018 2019 Net Income Birr 210,000 Birr 250,000 Cash Dividends Paid 110,000 sirr 100,000 Additional Information Cash dividends are always paid on July 1 of each year. Any goodwill is considered to have an indefinite life. Required i. What income did ABC originally report for 2010 in connection with this investment? ii. On comparative financial statements for 2010 and 2011, what figures should ABC report in connection with this investment?
Transcribed Image Text:C) On January 1, 2018, ABC Company pays $70,000 for a 10 percent interest in XYZ Company. On that date, XYZ has a book value of $600,000, although equipment, which has a five-year life, is undervalued by $100,000 on its books. Little Company's stock is closely held by a few investors and is traded only infrequently. Because fair values are not readily available on a continuing basis, the investment account is appropriately maintained at cost. On January 1, 2019, ABC acquires an additional 30 percent of XYZ Company for $264,000. This second purchase provides ABC the ability to exert significant influence over XYZ and ABC will now apply the equity method. At the time of this transaction, XYZ's equipment with a four-year life was undervalued by only $80,000. During these two years, XYZ reported the following operational results: Year 2018 2019 Net Income Birr 210,000 Birr 250,000 Cash Dividends Paid 110,000 sirr 100,000 Additional Information Cash dividends are always paid on July 1 of each year. Any goodwill is considered to have an indefinite life. Required i. What income did ABC originally report for 2010 in connection with this investment? ii. On comparative financial statements for 2010 and 2011, what figures should ABC report in connection with this investment?
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