NEW ERA UNIVERSITY

Advance Accounting II
Midterms Examination

Name: Batohinog, Tricia Jean B. Block: 1

Write your final answers in the table provided. Indicate if gain or loss.

1 D
2 A
3 D
4 A
5 C
6 D
7 B
8 C
9 D
10 C
11 C (40,000) LIABILITY
12 A (60,000) LOSS
13 A 20,000 GAIN
14 C
15 A 100,000 INCREASE
16 C (80,000) LIABILITY
17 D 200,000 GAIN
18 C 504,000
19 A 4840,000
20 D 666,750
21 A 787,500
22 B 7,000
23 A (1,750)
24 D (1,750)
25 A 3,948,750
26 B (1,023,750)
27 D 74,000
28 C (55,500)
29 C 10,275 LOSS
30 A 7,575 LOSS
 NEW ERA UNIVERSITY
Advance Accounting II
Midterms Examination

Name: BATOHINOG. TRICIA JEAN B. Block: 1

1. When a foreign currency transaction occurred in one period and settled in another period,
a. the exchange differences between the transaction date and the date of settlement is recognized in the period of
settlement.
b. exchange differences between the transaction date and the end of reporting period is recognized in the period
of transaction.
c. exchange differences between the end of the previous reporting period and the date of settlement is
recognized in the period of settlement.
d. b and c

2. When a foreign currency transaction occurred and settled in the same period,
a. all the exchange difference is recognized in that period.
b. all the exchange difference is recognized in the next period.
c. all the exchange difference is recognized in the previous period.
d. none of these

3. When several exchange rates are available, the rate used is

a. the selling rate
b. the buying rate
c. either a or b as a matter of accounting policy choice
d. that at which the future cash flows represented by the transaction or balance could have been settled if those
cash flows had occurred at the measurement date.

4. It is an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the activities of which are
based or conducted in a country or currency other than those of the reporting entity.
a. foreign operation c. foreigner
b. foreign transaction d. alien operation

5. When translating the financial statements of a foreign operation, which of the following translation procedures is
inappropriate
a. Assets, liabilities, and equity, including any goodwill and FVAs, are translated at the closing rate.
b. Income and expenses are translated at the spot exchange rates. For practical reasons, income and expenses may
be translated at the average rate.
c. All resulting exchange differences shall be recognized in profit or loss.
d. All resulting exchange differences shall be recognized in other comprehensive income.

6. When translating the financial statements of a foreign operation, the resulting exchange differences after translating
all assets, liabilities, equity, income and expenses consists of all of the following, except
a. Translation of opening net assets using opening and closing rates.
b. Translation of goodwill using opening and closing rates.
c. Translation of profit using average and closing rates.
d. Translation of ending net assets using opening and closing rates.

7. The accumulated translation differences from a foreign operation

a. is reclassified within equity when the foreign operation is derecognized.
b. is reclassified to profit or loss when the foreign operation is derecognized.
c. either a or b
d. remains within equity but cannot be reclassified from one equity account to another equity account

8. When an entity is operating under a hyperinflationary economy, its financial statements

a. are first consolidated in accordance with PFRS 10, then restated in accordance with PAS 29, and finally
translated to the presentation currency in accordance with PAS 21.
b. are first translated to the presentation currency in accordance with PAS 21 before they are restated in
accordance with PAS 29.
c. are first restated in accordance with PAS 29 before they are translated to the presentation currency in
accordance with PAS 21.
d. are first prepared using PAS 1, translated using PAS 21, consolidated using PFRS 10, then restated using PAS 29.
9. It refers to an obligation to deliver a fixed or determinable number of units of currency.
a. monetary item c. financial instrument
b. non-monetary item d. monetary liability

Use the following information for the next four questions:

On December 1, 20x1, ABC Co. enters into a silver futures contract to purchase 4,000 ounces of silver on February 1,
20x2 for ₱200 per ounce. The broker requires an initial margin deposit of ₱80,000. The quoted prices per ounce of silver
are as follows:
Dec. 1, 20x1 Dec. 31, 20x1 Feb. 1, 20x2
200 190 185

10. The entries on December 1, 20x1 include

a. debit to “deposit with broker” for ₱80,000
b. credit to cash for ₱80,000
c. a and b
d. none

11. How much is the derivative asset (liability) as of December 31, 20x1?
a. 0 b. (34,668) c. (40,000) d. 40,000

12. How much is the total net effect of the derivative on the 20x1 and 20x2 profit or loss? Gain (loss)
a. (60,000) b. 60,000 c. (40,000) d. 40,000

13. How much is the net settlement on February 1, 20x2? – Receipt (payment)
a. 20,000 b. (20,000) c. (60,000) d. 60,000

Use the following information for the next seven questions:

ABC Co. is a commodity trader. On December 1, 20x1, ABC Co. carries in its inventory 400 troy ounces of gold valued at
₱4,800,000 (or ₱12,000 per troy ounce). ABC Co. measures its inventory of gold at fair value less costs to sell through
profit or loss.

To protect the fair value of its inventory against a potential decline in prices, ABC Co. enters into a “short” futures
contract on December 1, 20x1 to sell 400 troy ounces of gold at ₱12,100 per troy ounce on February 1, 20x2 (the
expected date of sale of the inventory). The futures contract requires an initial margin deposit of ₱384,000.

We will assume that the fair values shown below already reflect costs to sell.
Dec. 1, 20x1 Dec. 31, 20x1 Feb. 1, 20x2
Spot price 12,000 12,250 11,800
Futures price 12,100 12,300 11,800

14. The entries on December 1, 20x1 include

a. debit to “deposit with broker” for ₱384,000
b. credit to cash for ₱384,000
c. a and b
d. none

15. How much is the adjustment to the inventory account on December 31, 20x1? Increase (decrease)
a. 100,000 b. (100,000) c. 80,000 d. 0

16. How much is the derivative asset (liability) as of December 31, 20x1?
a. (100,000) b. 100,000 c. (80,000) d. 80,000

17. How much is the gain (loss) on the futures contract on February 1, 20x2?
a. 0 b. (80,000) c. (200,000) d. 200,000

18. How much is the net settlement on February 1, 20x2? – Receipt (payment)
a. 120,000 b. (120,000) c. 504,000 d. 504,000

19. How much is the total net cash receipt (payment) on the two contracts?
a. 4,840,000 b. (4,840,000) c. (504,000) d. 504,000
Use the following information for the next five questions:
The unadjusted accounts of PRIMER Corporation of the Philippines at December 31, 2018 that relate to its forward
contracts are summarized as follows:

 Forward contract payable to BPI in Philippine pesos amounting to ₱133,000 for the Changi Corporation hedge
 Forward contract receivable from Metro Bank in Philippine pesos amounting to ₱294,000 intended to hedge a
foreign currency commitment to KBS Co. of Korea due in 90-days from December 1, 2018.
 Accounts payable to Changi Corporation of Singapore amounting to ₱127,750 billing was for 10,000,000
Singapore dollars’ worth of merchandise
 Forward contract receivable from BDO in Thailand Baht amounting to ₱227,500for speculation to purchase
200,000 Baht in 90-days from December 1, 2018
 Forward contract payable to Metro Bank in Korean Won amounting to ₱294,000 intended to hedge a 100,000
Won sales commitment with KBS Co. of Korea
 Froward contract receivable from BPI in Singapore dollars amounting to ₱133,000 which is to hedge payable to
Changi Corporation for 120-days from November 2, 2018
 Forward contract payable to BDO in Philippine pesos amounting to ₱227,500 for speculation in Thailand Baht

Direct exchange rates at December 31, 2018 were as follows:

Baht Singapore Dollars Won

Closing selling rate 1.12 0.013125 3.00125
Closing buying rate 1.10 0.013020 3.00100

Forward rates to purchase Thailand Baht and Singapore dollars and sell Korean Won:

Baht Singapore Dollars Won

30-day futures 1.155 0.0133 2.975
60-day futures 1.1725 0.013475 2.9575
90-day futures 1.19 0.01365 2.94
120-day futures 1.2075 0.013825 2.9225

20. Based on all foregoing transactions on December 31, 2018, how much is the total current assets of Primer?
a. ₱663,250 b. ₱528,500 c. ₱665,000 d. ₱666,750

21. Based on all foregoing transactions on December 31, 2018, how much is the total current liabilities of Primer?
a. ₱787,500 b. ₱656,250 c. ₱560,000 d. ₱918,750

22. In Primer’s income statement for the year ended December 31, 2018, what amount of FOREX gain (loss) should be
reported from the forward contract for speculation?
a. ₱1,750 b. ₱7,000 c. ₱(1,750) d. ₱(7,000)

23. In Primer’s income statement for the year ended December 31, 2018, what amount of FOREX gain (loss) should be
reported from the change in the fair value of the underlying sales commitment?
a. ₱(1,750) b. ₱7,000 c. ₱(7,000) d. ₱1,750

24. In Primer’s income statement for the year ended December 31, 2018, what amount of FOREX gain (loss) should be
reported from the hedge item in an exposed liability position?
a. ₱(3,500) b. ₱(2,500) c. ₱(7,000) d. ₱(1,750)

Use the following information for the next four questions:

Given the following information for Australian dollars, compute for the following independent cases below:

The agreement is to exchange currencies of different countries on a specified future date at the specified rate. Option
price is ₱20.60. The following direct exchange rates were as follows:

10/02/17 10/25/17 11/02/17 12/01/17 12/31/17 1/30/18 2/28/18 3/31/18

Buying 20.70 20.85 20.70 20.50 20.40 20.30 20.15 20.10
Selling 20.95 21.10 22.40 20.30 25.25 29.35 29.50 29.70
 150-day futures 120-day futures 90-day futures 60-day futures 30-day futures
March 31, 2018 23.40 22.70 25.85 26.50 29.40
Feb 28,2018 23.15 22.40 25.20 26.25 29.25
Jan 30, 2018 22.10 21.75 20.55 23.75 25.50
Dec 31, 2017 21.30 22.80 20.20 21.40 25.30
Dec 1, 2017 20.25 23.15 21.40 23.50 24.10
Nov 2, 2017 20.40 24.10 22.85 24.15 23.30

Transaction 1. On October 25, 2017, Compact Company ordered merchandise worth $975,000 from a Company in
Sydney, payable on February 28, 2018 in Australian $. It was shipped on November 2, 2017. To hedge this foreign
currency exposure, Compact Company bought $975,000 on December 1, 2017 for delivery on January 30, 2018 under a
forward contract with BDO.

25. What amount will affect profit or loss regarding the derivative asset on its settlement date in 2018?
a. ₱3,948,750 b. ₱97,500 c. ₱1,755,000 d. ₱5,958,750

26. As a result of all foregoing transactions, what amount will affect current earnings on the financial statement date in
2017?
a. ₱(2,778,750) b. ₱(1,023,750) c. ₱1,775,000 d. ₱292,500

Transaction 2. On October 2, 2017, Flash Company received an order of merchandise from a Company in Brisbane. It
was invoiced and shipped on October 25, 2017 to the customer. The price of $370,000 is to be collected in Australian
dollars on February 28, 2018. To hedge this foreign currency exposure, Flash Company sold $370,000 for delivery on
March 31, 2018 under a forward contract with BPI, which was entered into by Flash Company on November 2, 2018.

27. What amount will affect profit or loss regarding the hedging instrument on the financial statement date in 2017?
a. ₱(166,500) b. ₱92,500 c. ₱166,500 d. ₱74,000

28. As a result of all foregoing transactions, what amount will affect current earnings in 2018?
a. ₱(92,500) b. ₱(166,500) c. ₱(55,500) d. ₱(37,000)

Use the following information for the next two questions:

On December 1, 2022, Caloocan Corporation acquired 6,900 shares of Eastwood Company at a cost of ₱42 per share.
Caloocan classifies them as available-for-sale securities. On this same date, Caloocan decides to hedge against a possible
decline in the value of the securities by purchasing, at a cost of ₱17,850, an at-the-money put option to sell the 6,900
shares. The option expires on April 1, 2023. The fair values of the investment and the options follow:

12/1/22 12/31/22 4/1/23

Eastwood Company Shares
Per share ₱42 ₱39.75 ₱35.25
Put Option (6,900 shares)
Market value ₱23,100 ₱46,575

29. The gain/loss on option contract due to change in time value on December 31, 2022 if split accounting is used in the
assessment of hedge effectiveness should be:
a. ₱15,525 gain b. ₱10,275 gain c. ₱10,275 loss d. ₱15,525 loss

30. The 2023 net gain/loss in the hedging activity amounted to:
a. ₱7,575 loss b. ₱23,475 gain c. ₱7,575 gain d. ₱23,475 loss
 ITEM 10-13
FUTURES CONTRACT
“TO PURCHASE”

HEDGED ITEM HEDGING INSTRUMENT

20x1
Dec. 1 NO ENTRY Deposit with broker 80,000
Cash 80,000
Dec. 31 Loss on future contract (200-190)*4,000 40,000
Future contract-Liability 40,000
20x2 Loss on future contract (190-185)*4,000 20,000
Feb. 1 Future contract-Liability 20,000
Cash 20,000
Future contract-Liability 60,000
Deposit with broker 80,000

12. (40,000) + (20,000) = (60,000)

ITEMS 14-19
FUTURES CONTRACT
HEDGING FAIR VALUE

DATE HEDGED ITEM HEDGING INSTRUMENT

20x1
Dec. 1 Deposit with broker 384,000
Cash 384,000
Dec. 31 Inventory (12k-12.25)*400 100,000 Loss on future contract 80,000
Gain on fair value 100,000 Future contract-Liability 80,000
Feb. 1 Loss on fair value 450,000 Future contract-Asset 200,000
Inventory (450*400) 450,000 Gain on future contract 200,000
Cash (11,800*400) 4.72 m Cash 504,000
Sales 4.72 m Future contract-Asset 120,000
Deposit with broker 384,000

19.
4,720,000 + (384,000) + 504,000 = 4,840,000

FIRM SALES COMMITMENT- KOREA- WON (METROBANK-KBS CO.) (SELLER)

20x1
Dec. NO ENTRY Forward contract- 294,000
1 Receivable (100,000*2.94)
Forward contract- 294,000
Payable
Dec. Firm commitment-Asset 1,750 Loss on Forward contract 1,750
31 (100,000*(2.9575-2.94)
Loss on FC 1,750 Forward contract 1,750
Payable

SPECULATION – BAHT – BDO (BUYER)

20x1
Dec. 1 Forward contract- Receivable (200,000*1.1375) 227,500
Forward contract – Payable 227,500
Dec. 31 Forward contract- Receivable (200k(1.1375-1.1725) 7,000
Gain on forward contract 7,000
 RECOGNIZED LIABILITY – SINGAPORE - CHANGI CORP - BUYER
20x1
Nov. Purchases 127,750 Forward contract- 133,000
2 (10,000,000*.012775) Receivable
(10,000,000*.0133)
Accounts payable 127,750 Forward contract- 133,000
Payable
Forward contract 3,500
Receivable (.0133-.01365)
Gain on Forward 3,500
contract
Dec. Forex loss (.012775-.013125) 1,750 Loss on forward contract 1,750
31 (.01365-.013475)
Accounts payable 1,750 Forward contract 1,750
receivable

20.
Current assets BAHT = 234,500
Current assets SINGAPORE = 134,750
Current assets WON = 295,750

21.
Current liabilities BAHT = 227,500
Current liabilities SINGAPORE = 262,500
Current liabilities WON = 295,750