FinAct 5

Foreign Currency Transactions

Problem 1(Importing and Exporting Transactions)

Swarovski Jewels Inc., a Philippine dealer of jewelries has several transactions with foreign entities. Each
transaction is denominated in the local currency unit of the country in which the foreign entity is located.
For each of the following independent case, determine the December 2009, year-end balance in the
appropriate accounts for the case.

Case 1: On November 2, 2009, Swarovski Jewels Inc purchased goods from Hongkong at a price of
40,000 Hongkong dollars when the direct exchange rate was 1 Hkg$ = P4.50. The account has not
been settled as of December 31, 2009 when the exchange rate has decreased to 1Hkg$ = P4.00.

Case 2: On November 28, 2009, Swarovski Jewels Inc sold goods to a Taiwan company at a price of
20,000 NT Dollars when the direct exchange rate was 1 NT Dollar = P1.80. The account has not been
settled as of December 31, 2009 when the exchange rate has increased to 1 NT Dollar = P1.90.

Case 3: On December 1, 2009, Swarovski Jewels Inc purchased goods from Japan at a price of 60,000
yen when the direct exchange rate was 1 yen = P.40. The account has not been settled as of
December 2009 when the exchange rate has increased to 1 yen = P.45.

Case 4: On December 1, 2009, Swarovski Jewels Inc sold goods to Indonesian Company at a price of
2,500,000 Baht when the direct exchange rate was 1 Baht = P.003. The account has not been settled
as of December 31, 2009 when the exchange rate has decreased to 1 Baht = P.0025.

Required:
Provide the December 31, 2009, year-end balances on the records of Swarovski Jewels Inc, Inc. for each
of the following applicable items:

Problem 2: The accounts of Lincoln International, a Philippine Company, show P81,300 accounts
receivable and P38,900 accounts payable at December 31, 2008, before adjusting entries are made. An
analysis of the balances reveals the following:

Accounts Receivable
Receivable denominated in Philippine pesos P 28,500
Receivable denominated in 20,000 Swedish krona 11,800
Receivable denominated in 25,000 British pounds 41,000
Total P 81,300
Accounts Payable
Payable denominated in Philippine pesos P 6,850
Payable denominated in 10,000 Canadian dollars 7,600
Payable denominated in 15,000 British pounds 24,450
Total P 38,900

Current exchange rates for Swedish krona, British pounds, and Canadian dollars at December 31, 2008
are: P0.66, P1.65, and P0.70, respectively.

Required:
a. Determine the net exchange gain or loss that should be reflected in Lincoln’s statement of
comprehensive income for 2008 from year-end exchange adjustments.
b. Determine the amounts at which the accounts receivable and accounts payable should be included
in Lincoln’s December 31, 2008 statement of financial position.
c. Prepare journal entries to record collection of the receivables in 2009 when the spot rates for
Swedish krona and British pounds are P0.67 and P1.63, respectively.
d. Prepare journal entries to record settlement of the payables in 2009 when the spot rates for
Canadian dollars and British pounds are P0.71 and P1.62, respectively.

Problem 3: Shelton Corporation of Manila, Philippines is an international dealer in jewelry and engages in
numerous import and export activities. Shelton’s receivables and payables in foreign currency units
before year-end adjustments on December 31, 2008, are summarized below:

Rate on Date Per books in Current Rate

Foreign Currency Units of Transaction Phil. Pesos on 12/31/08
Currency

Accounts Receivable denominated in Foreign Currency

British pounds 100,000 P 1.6500 P 165,000 P 1.6600
Euros 250,000 0.6600 165,000 0.6700
 Swedish krona 160,000 0.6600 105,600 0.6400
P 450,600
Accounts payable denominated in Foreign Currency
Canadian dollars 150,000 P 0.7000 P 105,000 P 0.6900
Mexican pesos 220,000 0.1300 28,600 0.1350
Japanese yen 4,500,000 0.0074 33,300 0.0076
P 166,900

Required:
a. Determine the amount at which the receivables and payables should be reported in Shelton’s
December 31, 2008, statement of financial position.
b. Calculate individual gains and losses on each of the receivables and payables and the net exchange
gain or loss that should appear in Shelton’s 2008 statement of comprehensive income.
c. Assume that Shelton wants to hedge its exposure to amounts denominated in Euros, should it buy
or sell Euros for future delivery? In what amount or amounts?