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

question 78

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 August 31,Ram Corporation,a U.S.company,expects to order merchandise from a German supplier in three months,denominating the transaction in euros.On August 31,the spot rate is $1.19 per euro,and Quality enters into a three-month forward contract to purchase 600,000 euros at a rate of $1.20.At the end of three months,the spot rate is $1.21 per euro,and Ram orders and receives the merchandise,paying 600,000 euros.What are the effects on net income from these transactions?

• A)$6,000 Discount Expense plus a $6,000 negative Adjustment to Net Income when the merchandise is sold.
• B)$ 6,000 Discount Expense plus a $12,000 negative Adjustment to Net Income when the merchandise is sold.
• C)$ 6,000 Premium Expense plus a $6,000 negative Adjustment to Net Income when the merchandise is sold.
• D)$ 12,000 Premium Expense plus a $6,000 positive Adjustment to Net Income when the merchandise is sold.
• E)$ 12,000 Discount Expense plus an $12,000 positive Adjustment to Net Income when the merchandise is sold.

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Definitions:

Foreign Supplier

A company or individual that provides goods or services from outside the buyer's home country.

Comparative Advantage

The ability of a country or firm to produce a particular good or service at a lower opportunity cost than others, leading to more efficient global production and trade.

Dumping

The practice of selling a product in a foreign market at a price lower than its domestic market or below its cost of production, often to increase market share or eliminate surplus.

Per Capita GDP

is a measure of the economic output of a country divided by its population, providing an average economic welfare indicator.