Exercises: Foreign Currency Accounting 姓名：班级：学号：成绩：A.Answer the questions below1.Fluctuating exchange rates cause several major issues in accounting for foreign currency translation, what are they?( or the primary problem about foreign currency translation are ?)The Answer:(1)Which exchange rate should be used to translate foreign currency balancesto domestic currency?(2)Which foreign currency assets and liabilities are exposed to exchange ratechanges?(3)How should translation gains and losses be accounted for?B. Explain to the Conceptsdirect quoteThe exchange rate specifies the number of domestic currency unitsneeded to acquire a unit of foreign currency.indirect quoteThe exchange rate specifies the price of a unit of the domesticcurrency in terms of the foreign currency.current rateThe exchange rate in effect at the relevant financial statement date.functional currencyThe primary currency in which an entity does business and generates and spends cash. It is usually the currency of the country where the entity is located and the currency in which the books of record are maintainedhistorical rateThe foreign exchange rate that prevailed when a foreign currency asset or liability was first acquired or incurred.monetary itemsObligations to pay or rights to receive a fixed number of currency units in the future.settlement dateThe date on which a payable is paid or a receivable is collected.C. Drills of Business Transaction1.XYZ is a U.S. company, its foreign exchange business as below：On Dec. 1, 2008 ,XYZ company purchases a quantity of merchandise , on that day the exchange rate is UK￡0.6169=US＄1 .Assume the transaction costs is UK￡81050，payment period is 60 days.Assume the following exchange rates :December 31,2008 UK￡0.6150=US＄1January 31,2009 UK￡0.6159=US＄1Required：Prepared double entries under Two-transaction Perspective when transaction ,statement and transaction settlement date.1. On Dec. 1, 2008. Transaction DateDr. Merchandise Inventory $131382.72Cr. Accounts Payable $131382.72￡81050÷0.61692. On Dec. 31,2008. Statement DateDr. Foreign Exchange Loss $405.9Cr. Accounts Payable $405.9￡81050÷(0.6150-0.6169)3. On Jan. 31,2009. Settlement Date(1)Dr. Accounts Payable $192.58Cr. Foreign Exchange Gain $192.58￡81050÷(0.6159-0.6150)(2)Dr. Accounts Payable $131596.04Cr. Cash $131596.042.Assume that a U.S. firm imports (exports) equipment from Germany on March 1 for €200,000 when the exchange rate is $1.3112 per euro. Payment in euro does not have to be made until April 30. Assume that on March 31, the exchange rate is $1.3500 per euro and on April 30 is $1.3300 .Required：(1)Give the journal entries under the two-transaction perspective to the U.S. firm.(2)Give the journal entries under the single-transaction perspective to the U.S.firm.Under the single-transaction perspectivea. When the firm as an importer.1. On March 1. Transaction DateDr. Equipment $262,240Cr. Accounts Payable $262,240￡200,000x1.31122. On March 31. Statement DateDr. Equipment $7,760Cr. Accounts Payable $7,760￡200,000 x (1.3500-1.3112)3. On April 31. Settlement Date(1)Dr. Accounts Payable $4,000Cr. Equipment $4,000 ￡200,000 x (1.3300-1.3500)(2)Dr. Accounts Payable $266,000Cr. Cash $266,000 Under the two-transaction perspectivea. When the firm as an importer.1. On March 1. Transaction DateDr. Equipment $262,240Cr. Accounts Payable $262,240 ￡200,000x1.31122. On March 31. Statement DateDr. Foreign Exchange Loss $7,760Cr. Accounts Payable $7,760 ￡200,000 x (1.3500-1.3112)3. On April 31. Settlement Date(1)Dr. Accounts Payable $4,000Cr. Foreign Exchange Gain $4,000 ￡200,000 x (1.3300-1.3500)(2)Dr. Accounts Payable $266,000Cr. Cash $266,000 Under the single-transaction perspectivea. When the firm as an exporter.1. On March 1. Transaction DateDr. Accounts Receivable $262,240Cr. Sales $262,240 ￡200,000x1.31122. On March 31. Statement DateDr. Accounts Receivable $7,760Cr. Sales $7,760 ￡200,000 x (1.3500-1.3112)3. On April 31. Settlement Date(1)Dr. Sales $4,000Cr. Accounts Receivable $4,000 ￡200,000 x (1.3300-1.3500)(2)Dr. Cash $266,000Cr. Accounts Receivable $266,000Under the two-transaction perspectivea. When the firm as an exporter.1. On March 1. Transaction DateDr. Accounts Receivable $262,240Cr. Sales $262,240￡200,000x1.31122. On March 31. Statement DateDr. Accounts Receivable $7,760Cr. Foreign Exchange Gain $7,760￡200,000 x (1.3500-1.3112)3. On April 31. Settlement Date(1)Dr. Foreign Exchange Loss $4,000Cr. Accounts Receivable $4,000￡200,000 x (1.3300-1.3500)(2)Dr. Cash $266,000Cr. Accounts Receivable $266,0003. On January 1, assume that a U.S. firm borrows 5 million Swiss francs (CHF) for three years at 6 percent interest paid semiannually in Swiss francs .The principal does not have to be repaid until the end of loan. Assume also that the loan is adjusted for any exchange rate change every six months. Assume the following exchange rates for the first year:January 1 $0.8000June 30 $0.7900December 31 $0.8800The average exchange rate for the first six months was $.7960 and for the next six months was $.8500.Required：Please prepare the journal entries for the first year.On January 1Cash $ 4,000,000Loan payble $ 4,000,000CHF 5,000,000 x0.80000On June 30(1) Loan Payable $50,000Foreign Exchange Gain $50,000CHF 5,000,000 x(0.80000-0.7900)(2)Interest Expense $119,400Foreign Exchange Gain $900Cash $118,500Interest Expense:CHF 5,000,000 x. (0.06/2) x0.7960 = CHF 150,000x..7960 =$119,400Interest Paid:CHF 5,000,000 x. (0.06/2) x0.7900 = CHF 150,000x..7900=$118,500On December 31(1) Foreign Exchange Gain $450,000Loan Payable $450,000CHF 5,000,000 x(0.8800-0.7900)(2)Interest Expense $127,500Foreign Exchange Loss $4,500Cash $132,000Interest Expense:CHF 5,000,000 x. (0.06/2) x0.8500. = CHF 150,000x0.8500 =$127,500Interest Paid:CHF 5,000,000 x. (0.06/2) x0.8800 = CHF 150,000x..8800=$132,0004.Suppose X company is a subsidiary of a Chinese company located in anothercountry.The FC is functional currency .The balance sheet,income statement and related exchange rate listed below:Required: Use the current and temporal method to translate the balance sheet and income statement which expressed at FC into Chinese RMB yuan .Financial Statements of X Subsidiary CompanyBalance Sheet 12/31/2007 12/31/2008 Cash FC 500 Account receivable 1 500 Inventories(market) 1 000 3 000 Fixed assets 8 000 Accumulated depreciation (1 000) Long-term notes receivable 3 000 Total assets FC 15 000 Account payable FC 2 000 Short-term debt 1 000 Long-term liabilities 3 000 Stock capital8 000 Retained earnings 1 000 Total liabilities and owner’s equity FC 15 000Income Statement Year ended 12/31/2008 Sales FC20 000 Cost of sales FC12 000Depreciation 1 000Administrative expenses 3 000Income before tax FC 4 000 Income tax 1 500 Net income FC 2 500 Retained earnings（31／12／2007） 3 500 Total FC 6 000 Dividend distribution 3 000 Retained earnings（31／12／2008）FC 3 000 Suppose Exchange rates and related data for calendar 2008 were as follows1) December 31,2008FC1RMB￥0.502) Average during 2008 FC1RMB￥0.443) Average during 4th quarter ,2008 FC1RMB￥0.424)On stock offering date FC1RMB￥0.455)On dividend distribution date FC1RMB￥0.466)On the date acquisition of fixed assets FC1RMB￥0.437) On the date long-term notes receivable occurred FC1RMB￥0.448)On the date long-term debt occurred FC1RMB￥0.489）December 31,2007 inventory cost FC1000，FC1RMB￥0.40（C）FC1RMB ￥0.41（H）10) retained earnings on December 31,2007 is RMB ￥1400(under current method)11) retained earnings on December 31,2007 is RMB ￥1500(under temporal method)12) Suppose purchases cost of inventory in 2008 is FC14000.Required: Use the current rate method and temporal method to translate the balance sheet and income statement which expressed at FC into Chinese RMB yuan.1. CURRENT METHOD:X 公司收益及留存收益表X公司资产负债表①来源于本年折算后的收益与留存收益表.②7500-(1000+500+1500+3600+1120)=-220TEMPORAL METHOD:X 公司资产负债表X 公司收益及留存收益表②来源于本年折算后的资产负债表③根据:销货成本=期初存货成本+本期购货成本-期末存货成本= FC1000 x0.40+ FC14000 x0.44- FC3000 x0.50=￥5,060 ④折算损益=￥8800-5060-430-1320-950=￥1040。