Advanced Financial Accounting Final
Exam Review. Newest 2026-2027.
Questions and Correct Answers.
Graded A
A call option
Select one:
A. is a right to buy a specified quantity of an asset at a specified price.
B. is a right to sell a specified quantity of an asset at a specified price.
C. can be used to limit the price a company will have to pay for a
commodity.
D. Both A and C are true. - ANSD. Both A and C are true.
A derivative financial instrument is best described as - ANSA contract that
has its settlement value tied to an underlying notional amount.
A foreign subsidiary's functional currency is its local currency, which has
not experienced significant inflation. The weighted average exchange rate
for the current year would be the appropriate exchange rate for translating:
- ANSSalaries expense: Yes; Sales to external customers: Yes
A forward contract - ANSis a commitment to buy or sell a specified quantity
of an asset or commodity at a specified price and future date.
1
,A highly inflationary economy is best defined as - ANSOne which has a
cumulative inflation of over 100% over a three-year period.
An exchange rate of $1.25:¥1 - ANSCan also be expressed as $1: ¥0.80
[(1/1.25)]
An item that should be remeasured using the historical exchange rate is: -
ANSPrepaid expenses
An option contract - ANShas an intrinsic value that is never less than zero.
Assume our U.S.-based company's functional currency is the $US and it
enters into a "firm commitment" with a Portugal-based retailer on
November 15, 2018. The firm commitment requires our company to sell
40,000 units of an inventory item costing €20 each to the Portuguese
company. Our company is contractually committed to ship the inventory
(i.e., title transfers) on February 15, 2019, with payment in Euros on the
same date. Our company does recurring business with the Portuguese
company, and the firm commitment includes significant monetary penalties
for nonperformance. Also assume, on November 15, 2018, our company
enters into a contract with a foreign currency exchange broker to sell Euros
(for settlement on February 15, 2019) to mitigate the risk of exchange rate
fluctuation. This derivative qualifies as a fair value hedge. The relevant
exchange rates and related balances for the period from November 15,
2018, to - ANS$0 because sale is recognized on ship date date
2
, Assume our U.S.-based company's functional currency is the $US and it
enters into a "firm commitment" with a Portugal-based retailer on
November 15, 2018. The firm commitment requires our company to sell
40,000 units of an inventory item costing €20 each to the Portuguese
company. Our company is contractually committed to ship the inventory
(i.e., title transfers) on February 15, 2019, with payment in Euros on the
same date. Our company does recurring business with the Portuguese
company, and the firm commitment includes significant monetary penalties
for nonperformance. Also assume, on November 15, 2018, our company
enters into a contract with a foreign currency exchange broker to sell Euros
(for settlement on February 15, 2019) to mitigate the risk of exchange rate
fluctuation. This derivative qualifies as a fair value hedge. The relevant
exchange rates and related balances for the period from November 15,
2018, to - ANS$1,120,000
(800,000 X Feb 15 Spot Rate) + Feb 15 FV(b) or (800,000 X Nov 15 FWD
Rate)
Assume our U.S.-based company's functional currency is the $US dollar
and it enters into a forecasted transaction with an England-based retailer
on December 1, 2018. The forecasted transaction requires our company to
sell 75,000 units of an inventory item costing £12 each to the English
company. Our company is contractually committed to ship the inventory
(i.e., title transfers) on March 1, 2019, with payment in British pounds on
the same date. Our company does recurring business with the English
company, but this arrangement does not qualify as a firm commitment. Also
assume, on December 1, 2018, our company enters into a contract with a
3
Exam Review. Newest 2026-2027.
Questions and Correct Answers.
Graded A
A call option
Select one:
A. is a right to buy a specified quantity of an asset at a specified price.
B. is a right to sell a specified quantity of an asset at a specified price.
C. can be used to limit the price a company will have to pay for a
commodity.
D. Both A and C are true. - ANSD. Both A and C are true.
A derivative financial instrument is best described as - ANSA contract that
has its settlement value tied to an underlying notional amount.
A foreign subsidiary's functional currency is its local currency, which has
not experienced significant inflation. The weighted average exchange rate
for the current year would be the appropriate exchange rate for translating:
- ANSSalaries expense: Yes; Sales to external customers: Yes
A forward contract - ANSis a commitment to buy or sell a specified quantity
of an asset or commodity at a specified price and future date.
1
,A highly inflationary economy is best defined as - ANSOne which has a
cumulative inflation of over 100% over a three-year period.
An exchange rate of $1.25:¥1 - ANSCan also be expressed as $1: ¥0.80
[(1/1.25)]
An item that should be remeasured using the historical exchange rate is: -
ANSPrepaid expenses
An option contract - ANShas an intrinsic value that is never less than zero.
Assume our U.S.-based company's functional currency is the $US and it
enters into a "firm commitment" with a Portugal-based retailer on
November 15, 2018. The firm commitment requires our company to sell
40,000 units of an inventory item costing €20 each to the Portuguese
company. Our company is contractually committed to ship the inventory
(i.e., title transfers) on February 15, 2019, with payment in Euros on the
same date. Our company does recurring business with the Portuguese
company, and the firm commitment includes significant monetary penalties
for nonperformance. Also assume, on November 15, 2018, our company
enters into a contract with a foreign currency exchange broker to sell Euros
(for settlement on February 15, 2019) to mitigate the risk of exchange rate
fluctuation. This derivative qualifies as a fair value hedge. The relevant
exchange rates and related balances for the period from November 15,
2018, to - ANS$0 because sale is recognized on ship date date
2
, Assume our U.S.-based company's functional currency is the $US and it
enters into a "firm commitment" with a Portugal-based retailer on
November 15, 2018. The firm commitment requires our company to sell
40,000 units of an inventory item costing €20 each to the Portuguese
company. Our company is contractually committed to ship the inventory
(i.e., title transfers) on February 15, 2019, with payment in Euros on the
same date. Our company does recurring business with the Portuguese
company, and the firm commitment includes significant monetary penalties
for nonperformance. Also assume, on November 15, 2018, our company
enters into a contract with a foreign currency exchange broker to sell Euros
(for settlement on February 15, 2019) to mitigate the risk of exchange rate
fluctuation. This derivative qualifies as a fair value hedge. The relevant
exchange rates and related balances for the period from November 15,
2018, to - ANS$1,120,000
(800,000 X Feb 15 Spot Rate) + Feb 15 FV(b) or (800,000 X Nov 15 FWD
Rate)
Assume our U.S.-based company's functional currency is the $US dollar
and it enters into a forecasted transaction with an England-based retailer
on December 1, 2018. The forecasted transaction requires our company to
sell 75,000 units of an inventory item costing £12 each to the English
company. Our company is contractually committed to ship the inventory
(i.e., title transfers) on March 1, 2019, with payment in British pounds on
the same date. Our company does recurring business with the English
company, but this arrangement does not qualify as a firm commitment. Also
assume, on December 1, 2018, our company enters into a contract with a
3
