Test Bank chapter 12

Accounting for Foreign Currency Transactions And Hedging Foreign Exchange Risk Multiple Choice 1. A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a a. hedge of a net investment in a foreign entity. b. hedge of an exposed asset or liability position. c. hedge of an identifiable foreign currency commitment. d. contract acquired to speculate in the movement of exchange rates. 2. The discount or premium on a forward contract entered into as a hedge of an exposed asset or liability position should be a. included as a separate component of stockholders equity. b. amortized over the life of the forward contract. c. deferred and included in the measurement of related foreign currency transaction. d. none of these. 3. An indirect exchange rate quotation is one in which the exchange rate is quoted a. in terms of how many units of the domestic currency can be converted into one unit of foreign currency. b. for the immediate delivery of currencies exchanged. c. in terms of how many units of the foreign currency can be converted into one unit of domestic currency. d. for the future delivery of currencies exchanged. 4. A transaction gain is recorded when there is an a. importing transaction and the exchange rate increases. b. exporting transaction and the exchange rate increases. c. exporting transaction and the exchange rate decreases. d. none of these. 5. During 2011, a U.S. company purchased inventory from a foreign supplier. The transaction was denominated in the local currency of the seller. The direct exchange rate increased from the date of the transaction to the balance sheet date. The exchange rate decreased from the balance sheet date to the settlement date in 2012. For the years 2011 and 2012, transaction gains or losses should be recognized as 2011 2012 a. gain gain b. gain loss c. loss loss d. loss gain 6. A transaction gain or loss is reported