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Problem 1

How does P & P determine the value for Levels 1, 2 and 3investments? Problem 3 Why would foreign currency translationdecrease from 2013 to 2014?

Problem 3

Why would foreign currency translation decrease from 2013 to2014?

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1. If a US company has net cash outflows in a foreign currency, which of the following is false?
(A) The US company would benefit from a drop-in value of the foreign currency.
(B) The US company would benefit from an increase in value of the foreign currency.
(C) The US company would suffer a loss from a decrease in value of the foreign currency.
(D) The appreciation or depreciation of the foreign currency would be irrelevant.
.........

2 A US firm that has cash flows in a foreign currency will have an economic GAIN if

I. the foreign currency appreciates, and the US firm has net cash inflows

II. the US firm has net cash outflows and the foreign currency depreciates

(A) I only

(B) II only

(C) Both I and II

(D) Neither I nor II

.......

3. The decision to exercise a call option would be based on

I. strike price

II. call premium

III. market price of the underlying security

(A) I and II

(B) II and III

(C) II only

(D) I only

................

4. Which of the following is FALSE regarding the US dollar?

(A) A strong US dollar makes domestic goods relatively more expensive than imported goods.

(B) A strong US dollar is better for a US company than a weak US dollar.

(C) A weak US dollar makes imported goods relatively cheaper than domestic goods.

(D) A weak US dollar makes domestic goods more expensive than

imported goods.

............

5. Wright International is a US firm that typically exports goods to Japan. Since the international receivables are denominated in yen, they are subject to fluctuating currency rates. To mitigate chis risk, Wright sometimes purchases put options to protect against loss from a decline in the yen. The put premium is relevant to the

I. decision to exercise the option

II. calculation of gain or loss on the exercise of the put option

(A) I only

(B) II only

(C) Both I and II

(D) Neither I nor II

pl explain answer

The following account balances are for the Agee Company as ofJanuary 1, 2013, and December 31, 2013. All figures are denominatedin kroner (Kr).

January 1,2013 December
31, 2013
Accounts payable (6,000) (18,500)
Accounts receivable 37,000 87,000
Accumulated depreciation—buildings (28,000) (33,000)
Accumulated depreciation—equipment 0 (5,800)
Bonds payable—due 2016 (58,000) (58,000)
Buildings 117,000 96,500
Cash 43,000 8,800
Common stock (67,000) (77,000)
Depreciation expense 0 23,000
Dividends (10/1/13) 0 40,000
Equipment 0 38,000
Gainon sale of building 0 (6,800)
Rentexpense 0 18,800
Retained earnings (38,000) (38,000)
Salary expense 0 28,000
Sales 0 (112,000)
Utilities expense 0 9,000
AdditionalInformation
•

Agee issued additional shares of common stock during the year onApril 1, 2013. Common stock at January 1, 2013, was sold at thestart of operations in 2004.
•

It purchased buildings in 2005 and sold one building with a bookvalue of Kr 15,500 on July 1 of the current year.
• Equipment wasacquired on April 1, 2013.

Relevant exchange rates for 1 Kr were as follows:
2004 $ 2.80
2005 2.60
January 1, 2013 2.90
April 1, 2013 3.00
July1, 2013 3.20
October 1, 2013 3.30
December 31, 2013 3.40
Average for 2013 3.10
a.

Assuming the U.S. dollar is the functional currency and retainedearnings at January 1, 2013, total $60,600, what is theremeasurement gain or loss for 2013? (Input the amount as apositive value.)
Remeasurement (Click to select)gainloss $
b.

Assuming the foreign currency is the functional currency andretained earnings at January 1, 2013, total $70,319, what is thetranslation adjustment for 2013? (Input the amount as apositive value.)
Translation adjustment (Click toselect)positivenegative $

The following account balances are for the Agee Company as ofJanuary 1, 2013, and December 31, 2013. All figures are denominatedin kroner (Kr).

January 1,2013 December
31, 2013
Accounts payable (7,000) (14,000)
Accounts receivable 36,000 86,000
Accumulated depreciation—buildings (27,000) (32,000)
Accumulated depreciation—equipment 0 (5,700)
Bonds payable—due 2016 (57,000) (57,000)
Buildings 116,000 96,000
Cash 42,000 8,700
Common stock (66,000) (82,000)
Depreciation expense 0 22,000
Dividends (10/1/13) 0 39,000
Equipment 0 37,000
Gainon sale of building 0 (6,700)
Rentexpense 0 18,200
Retained earnings (37,000) (37,000)
Salary expense 0 27,000
Sales 0 (108,000)
Utilities expense 0 8,500
AdditionalInformation
•

Agee issued additional shares of common stock during the year onApril 1, 2013. Common stock at January 1, 2013, was sold at thestart of operations in 2004.
•

It purchased buildings in 2005 and sold one building with a bookvalue of Kr 15,000 on July 1 of the current year.
• Equipment wasacquired on April 1, 2013.

Relevant exchange rates for 1 Kr were as follows:
2004 $ 2.75
2005 2.55
January 1, 2013 2.85
April 1, 2013 2.95
July1, 2013 3.15
October 1, 2013 3.25
December 31, 2013 3.35
Average for 2013 3.05
a.

Assuming the U.S. dollar is the functional currency and retainedearnings at January 1, 2013, total $59,600, what is theremeasurement gain or loss for 2013? (Input the amount as apositive value.)
Remeasurement (Click to select)gainloss $
b.

Assuming the foreign currency is the functional currency andretained earnings at January 1, 2013, total $69,319, what is thetranslation adjustment for 2013? (Input the amount as apositive value.)
Translation adjustment (Click toselect)negativepositive $

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