REFERENCE: Ref.09_07 Winston Corp. ,A U.S.company,had the Following Foreign Currency Transactions During

question 60

Multiple Choice

REFERENCE: Ref.09_07
Winston Corp. ,a U.S.company,had the following foreign currency transactions during 2008:
(1. ) Purchased merchandise from a foreign supplier on July 16,2008 for the U.S.dollar equivalent of $47,000 and paid the invoice on August 3,2008 at the U.S.dollar equivalent of $54,000.
(2. ) On October 15,2008 borrowed the U.S.dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15,2008.The U.S.dollar equivalent of the note amount was $295,000 on December 31,2008,and $299,000 on October 15,2009.
-On April 1,Quality Corporation,a U.S.company,expects to order merchandise from a German supplier in three months,denominating the transaction in euros.On April 1,the spot rate is $1.19 per euro,and Quality enters into a three-month forward contract to purchase 400,000 euros at a rate of $1.20.At the end of three months,the spot rate is $1.21 per euro,and Quality orders and receives the merchandise,paying 400,000 euros.What are the effects on net income from these transactions?

• A)$4,000 Discount Expense plus a $4,000 negative Adjustment to Net Income when the merchandise is received.
• B)$ 4,000 Discount Expense plus an $8,000 negative Adjustment to Net Income when the merchandise is received.
• C)$ 4,000 Premium Expense plus a $4,000 negative Adjustment to Net Income when the merchandise is received.
• D)$ 8,000 Premium Expense plus a $4,000 positive Adjustment to Net Income when the merchandise is received.
• E)$ 8,000 Discount Expense plus an $8,000 positive Adjustment to Net Income when the merchandise is received.

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Definitions:

Yield Management

A variable pricing strategy based on understanding, anticipating, and influencing consumer behavior to maximize revenue or profits from a fixed, perishable resource (such as airline seats or hotel room bookings).

Controlling Cost

The process of monitoring and managing expenses to stay within budget and improve efficiency and profitability.

Labor

A measure of the work done by human beings.

Transportation Method

A mathematical optimization technique used for finding the most cost-efficient plan for distributing products from several suppliers to several consumers.