Catanduanes State University

COLLEGE OF BUSINESS AND ACCOUNTANCY

Virac, Catanduanes

FINAL EXAMINATION
APr 4/Accounting for Business Combinations
General Instruction: Answers and computations must be handwritten. Do not copy the
questions/problems and use short or A4 size coupon or white pad. Please read the instructions
carefully.
1. Sunflower Company reported the following liabilities in the statement of financial position at year end:

Accounts payable 1,000,000

Accrued expenses 500,000
Bonds payable 3,000,000
Finance leas liability 4,000,000
Unearned revenue 300,000
Advances from customers 1,200,000
Estimated warranty liability 200,000
Deferred tax liability 400,000

The total monetary liabilities _______________

2. Gardenia Company reported the following assets in the statement of financial position at year-end:

Cash in bank 2,000,000

Accounts receivable 4,000,000
Inventory 1,500,000
Available for sale securities 500,000
Patent 1,000,000
Advances to suppliers 400,000
Advances to employees 200,000
Prepaid expenses 100,000

The total monetary assets is _____________

3. On January 1, 2017, Sunrise Company purchased an equipment for P 3,000,000. The equipment was
depreciated over 10 years using straight line with no residual value.

On October 1, 2020, the equipment was sold for P 2,000,000.

The relevant general price index numbers are:

January 1, 2017 100
December 31, 2017 120
October 1, 2020 280
December 31, 2020 300

What is the loss on sale of equipment in a hyperinflationary income statement? _______________

4. At the beginning of current year, Gamma Company had monetary assets of P 5,000,000 and
monetary liabilities of P 3,000,000. During the current year, the entity’s monetary inflows and outflows
were relatively constant and equal so that it ended the year with the same net monetary assets of
P 2,000,000.

The index number on January 1 was 125 and the index number on December 31 was 280.

The gain or loss on purchasing power n during the current year is _________________

For 5 – 8:
Way Company acquired an equipment on January 1, 2020 for P 5,000,000. Depreciation is computed
using the straight line method. The estimated useful life of the equipment is five years with no residual
value.

A specific price index applicable to the equipment was 150 on January 1, 2020 and 225 on December
31, 2020.
5. The amount of depreciation should be reported in the historical cost income statement for 2020 is
_________________

6: The amount of depreciation expense should be reported in the current cost income statement for
2020 is _____________________

7. The realized holding gain on the equipment for 2020 is __________________

8: The unrealized holding gain on the equipment for 2020 is _______________

9. Simple Company reported the following information in relation to Land:

 The entity purchased land on January 1, 2020 for P 500,000 cash. On December 31, 2020, the
land has a current replacement cost of P 600,000.
 On December 31, 2021, the land has a current replacement cost of P 750,000.
 The entity sold the land for P 1,000,000 cash on December 31, 2022. On this date, the current
replacement cost of the land is P 800,000.

The gain on sale of land to be reported in 2022 is _______________

10. XX Trading Company purchases goods from RR Company based in France for 1,200,000 Euros.
(€). The exchange rate at this time is P 1=€12.5. XX pays 25 days later when the prevailing
exchange rate is P1=€16.

How much is the foreign exchange gain/loss on the books of XX and RR, respectively?
___________________

11: If 40 Philippine peso can be exchanged for 1 US Dollar:

What is the indirect quotation? ____________________

12. On December 1, 2020, PR Corporation, ordered equipment FOB shipping point from an
American Company for US$10,000. The equipment was shipped and invoiced to PR on
December 16, 2018. PR paid the invoice on January 15, 2021.

Relevant spot rates for US dollars on the respective dates are as follows:
Buying spot rate Selling spot rate
December 1. 2020 P 50.50 P 51.00
December 16, 2020 50.90 52.00
December 31, 2020 51.50 53.00
January 15, 2021 52.00 52.50

The entry to record the settlement on January 15, 2021:

13. CDE Corporation, sold merchandise – metal crafts to a Canadian Corporation for 10,000
Canadian dollars. Pertinent information and conversion rates related to this transaction were
as follows:
Buying spot rate Selling spot rate
November 16, 2020– receipt of order P 31.50 P 32.00
December 16, 2020- date of shipment 32.50 33.00
December 31, 2020 - balance sheet date 33.50 33.75
January 15, 2021 – date of collection 33.00 34.00

The entry to record the settlement on January 15, 2021:

For 14 - 15:
On September 1, 2020, JARD Company, a Philippine based company ordered 1,000 units of inventory
from a US Corporation for $25,000. The inventory was shipped and invoice to JXN Company on
December 1, 2020 to be paid on February 1, 2021. JXN’s fiscal year end is December 31.

The following are the spot rates for US dollars at various dates:
Buying spot rates Selling spot rates
September 1. 2020 P 38.90 P 40.10
December 1, 2020 40.00 40.30
December 31, 2020 40.60 40.85
February 1, 2021 40.45 40.65

14: How much is the FOREX gain or (loss) on December 31, 2020? ____________________

15: How much is the outstanding accounts payable as of December 31, 2020? _______________

16. On November 1, 2020, BMGO Company a Philippine Based Company received an order of 1,500
units of inventory from JC Company a US based Company for $50,000. The inventory was shipped by
BMGO Company and billed JC Company on December 1, 2020. BMGO Company received in full on
March 2, 2021. BMGO’s fiscal year end is December 31.

The following are the spot rates for US dollars at various dates:
Buying spot rates Selling spot rates
November 1. 2020 P 39.90 P 40.10
December 1, 2020 40.00 40.20
December 31, 2020 40.60 40.85
March 2, 2021 40.40 40.70

How much is the net forex gain or (loss)? ___________________

17. A wholly owned foreign subsidiary of DARE Company has certain expense accounts for the year
ended December 31, 2020 stated in the local currency unit (LCU) as follows:
LCU
Patent amortization (related patent acquired on January 1, 2018) 100,000
Provision for doubtful accounts 60,000
Rent 100,000

The exchange rates at various dates are as follows:

Dollar equivalent of 1 LCU
December 31, 2020 $ 0.20
Average for year ended 12/31/2020 0.22
January 1, 2018 0.25

The subsidiary operations were an extension of the parent company’s operations, thus the functional
currency is US$.

What total Dollar amount should be included in Dare’s income statement to reflect the above expenses
for the year ended December 31, 2020? (Temporal method _______________

For 18 – 19:
Nature Company, a domestic corporation, holds 100% interest of BIG Corporation, operating in
Japan. This ownership interest was acquired when BIG Corporation was initially incorporated. The trial
balance of BIG Corporation at December 31, 2020 is presented below:

Cash JPY 400,000

Accounts receivable 200,000
Inventory, end 600,000
Plant and Equipment, net 1,000,000
Cost of sales 1,100,000
Depreciation expense 100,000
Other expenses 500,000
Notes payable JPY 600,000
Ordinary shares 1,000,000
Retained Earnings 500,000
Sales _ _ ___ 1,800,000
Total JPY 3,900,000 JPY 3,900,000
The ordinary shares were issued four years ago when the exchange rate was P 0.35. The weighted
average exchange rate for 2020 was P 0.53. The spot rate for the yen was P 0.48 on January 1, 2020
and P 0.58 on December 31, 2020. The translated amount of retained earnings, beginning was P 22,500.

18: The total assets translated in Philippine peso? ____________________

19. The translated amount of net income? __________________________

20 -21:
On December 1, 2020, PBC Corporation entered into forward exchange contracts for speculative
purposes in anticipation for a gain to sell US$ 10,000 in 90 days for delivery on March 1, 2021. The fiscal
year end for PBC Corporation is December 31. The exchange rates available on various dates are as
follows:

Nov. 1, 2020 Dec. 31, 2020 Feb. 1, 2021

Spot rate P 40.00 P 40.25 P 40.35
30 day forward rate 40.10 40.35 40.50
60 day forward rate 40.15 40.40 40.70
90 days forward rate 40.25 40.45 40.65
120 days forward rate 40.30 40.50 40.70

20: How much is the foreign currency payable as of March 1, 2021? _______________

21: How much is the net forex gain or loss? _________________

22. On December 1, 2020, MM Corporation entered into a 120-day forward contract to purchase 250,000
US dollars for speculative purposes. MM Corporation fiscal year ends on December 31. The
exchange rates as follows:

Spot rate Forward rate ( 3/31/2021)

December 1, 2020 P 45.00 P 45.50
December 31, 2020 46.00 46.50
January 30, 2021 45.60 45.30
March 31, 2021 45.10

How much is the forex gain or loss to be reported from this forward contract in 2021? _________

23. WIND Corp. entered into a forward contract to hedge a sale of inventory in October 26, 2020 to be
collected on January 24, 2021, 72,000 FC in 90 days. The relevant exchange rates are as follows:

Spot rate Forward rate ( Jan. 1, 2021)

October 26, 2020 P 52.73 P 52.77
December 31, 2020 52.82 52.89
January 24, 2021 52.94

What is the net forex gain (loss) from this transaction and hedge that will be reported on Wind Corp.’s
2020 statement of Income? ______________

For item 24 – 25:

CS Company sold for 111,200 euros to a customer in France on November 2, 2020. Collection in euros
was due on January 31, 2021. On the same date, to hedge this foreign currency exposure, CS company
enters into a forward contract to sell 111,200 euros to Metro Bank for delivery on January 31, 2021.

Exchange rates for euros on different dates are as follows:

Nov. 2, 2020 Dec. 31, 2020 Jan. 31, 2021
Spot rates 81.9 80.7 80.1
30-day forward rate 82.3 80.4 83.9
60-day forward rate 81.8 80.3 82.6
90-day forward rate 80.6 81.6 83.4
120-day forward rate 80.1 81.4 82.8

24. What amount will affect profit or loss regarding the hedge item on the financial statement date in
2020? _________________
25 What amount will affect profit or loss regarding the hedging instrument the financial statement date in
2021? __________________

26. – 30:
On December 1, 2020, Hope Company paid P 3,000 to purchase a 90-day call option for 500,000
Thailand baht. The option purpose is to protect an exposed liability off 500,000 baht relating to a
purchase of merchandise received on December 17, 2020 and to be paid on March 1, 2021.

Relevant rates and market values at different dates are as follows:

Dec.1, 2020 Dec. 31, 2020 March 1, 2021

Spot rate (Market price ) P 1.20 P 1.28 P 1.27
Strike price (exercise price) 1.20 1.20 1.20
Fair value of call option P 3,000 P 42,000 P 35,000

26. What is the Forex contract value – option as of December 31, 2020? _________________

27: What is the time value of option on December 11, 2020? _______________

28: What is the intrinsic value of option on December 31, 2020?_______________

29: What is the time value of option on March 1, 2021? ___________________

30. What is the intrinsic value of option on March 1, 2021?__________________

For 31- 32:
On August 1, 2020, SSR, Inc. a Philippine Company purchased a machine costing FC200,000 from
foreign vendor to be paid on October 1, 2020. Also on August 1, 2020, SSR entered into a contract to
purchase FC200,000 to be delivered on October 1, 2020, at a forward rate of P 0.35 The
exchange rate was as follows:

August 1, 2020 FC1 = P 0.34 October 1, 2020 FC1 = P 0. 32

August 31, 2020 = P 0.31 November 30, 2020 0.32
September 30, 2020 = P 0.33 December 31, 2020 0.33

31. Which of the following statements is incorrect concerning the accounting treatment of these
transactions?
a) The beginning balance in the accounts payable was P 68,000
b) The machine final recorded value was P 70,000.
c) The exchange gain on the accounts payable of P 4,000 was recognized on October 1, 2020.
d) The peso value of the accounta payable just before payment on October 1, 2020 was
P 64,000.

32. Which of the following statements is incorrect concerning the forward contract?
a) The balance of Foreign Currency Receivable on October 1, 2020 was P 70,000.
b) The peso equivalent of the foreign currency to be received on October 1, 2020 was P 64,000
c) The amount paid for the forward contract on October 1, 2020 was P 64,000.
d) The loss on forward contract to be recognized on October 1, 2020 amounted to P 6,000.

33. On October 1, 2020. OUR Philippines took delivery from Thailand firm of inventory costing 1,140,000
Baht. Payment is due on January 31, 2021. Concurrently, OUR Philippines paid P 15,700 cash to
acquire an at-the- money call option for 1,140,000 baht. Strike price is P 12.40.

Oct. 1, 2015 Dec. 31, 2015 Jan. 31, 2016

Market price P 12.40 P 12.423 P 12.427
Fair value of call option P 28,200 P 30,780

Which of the following statements is incorrect concerning the accounting treatment of these
transactions?
a) The gain on hedging instrument of P 4,560 due to change in change in intrinsic value on
Jan. 31, 2021.
b) The option to buy was “out of the money” on January 31, 2021.
c) The final value of the inventory was P 14,136,000.
d) The peso value of the foreign currency on January 31, 2021 was P 14,166,780
34. CS Company sold for 111,200 euros to a customer in France on November 2, 2020. Collection in
euros was due on January 31, 2021. On the same date, to hedge this foreign currency exposure, CS
company entered into a futures contract to sell 111,200 euros to Metro Bank for delivery on
January 31, 2021.

Exchange rates for euros on different dates are as follows:

Nov. 2, 2020 Dec. 31, 2020 Jan. 31, 2021

Spot rates 81.9 80.7 80.1
30-day futures 82.3 80.4 83.9
60-day futures 81.8 80.3 82.6
90-day futures 80.6 81.6 83.4
120-day futures 80.1 81.4 82.8

Which of the following statements is incorrect concerning the accounting treatment of these
transactions?
a) A forex loss of P 133,440 on the hedge item was recorded on the financial statement date
in 2020.
b) A net forex loss of P 33, 360 on the hedge item and the hedging instrument on Jan. 31,
2021.
c) The peso value of the foreign currency on January 31, 2021 was P 8,907,120.
d) The peso value of forward contract payable before payment on January 31, 2021 was
P 8,962,720.

35. On January 1, 2021, GF, Inc. paid P 16,000 cash to acquire a put foreign exchange option for
1,000,000 Thailand baht, with an expiration date of December 31, 2021. The option hedges 2021’s
forecasted exporting sales of 1,000,000 baht. GF’s fiscal year ends June 30.

1/1/2021 6/30/2021 12/31/2021

Spot rate (market price) P 1.20 P 1.12 P1.15
Strike price (exercise price) 1.20 1.19 1.19
Fair value of put option at 6/30/2015 P 81,000

What is the intrinsic value and time value of option on January 1, 2015?
Intrinsic value Time value Intrinsic value Time value
a) P 16,000 P 0 c) P 10,000 P 6,000
b) 0 16,000 d) 6,000 10,000

36. On September 1, 2020,, RRD Corp. entered into a foreign exchange contract for speculative
purposes by purchasing 50,000 deutsche marks for delivery in 60 days. The rates to exchange follow:
9/1/2020 9/30/2020
Spot rate P 21.00 P 21.50
30-day forward rate 20.98 20.00
60-day forward rate 20.99 22.10

In its September , 2020 income statement, what should RRD report as foreign exchange transaction
gain loss) ? ________________

Problem 37:
On January 3, 2020, LCR Inc. paid P 9,800 to acquire a put option. This is in relation to the sale of
merchandise worth $ 65,000. (strike price = P 4.965).
1/3/2020 3/31/2020 6/20/2020
Spot rate P 4.934 P 4.908 P 4.750
Fair value of option P 9,800 P 11,400 P 13,975

How much is the foreign gain/loss on the intrinsic portion on March31, 2020? _______________

38. On November 1, 2020, WAY, Inc. paid P 45,000 to acquire call foreign currency option for HK$
90,000. The option is acquired to hedge the 2021 anticipated purchase of merchandise for HK$
90,000. The option expires on March 30, 2021.

11/1/2020 12/31/2020 3/31/2021

Spot rate P 3.46 P 3.40 P 3.39
Fair value of option P 45,000 P 50,500 P 72,000
Strike price P 3.47 P 3.47 P 3.47

At what amount must the merchandise be presented as of December 31, 2020? _____ _____
39- 40:
Troy intends to sell ¥550,000 under a forward contract dated December 1. Exchange rate were as
follows:
Dates Forward rates Spot rates
December 1 P 0.55 P 0.53
December 31 P 0.50 P 0.49
March 22 P 0.48 P 0.46

39. the Forward Contract Receivable to be presented on December 31 is _____________

40. the Forward Contract Payable be presented on December 31 is __________________

41-42
On October 31, 2020, PTR Philippines took delivery from British firm of inventory costing £1,450,000.
Payment is due on January 31, 2021. At the same time , PTR paid P 16,500 cash to acquire a 90-day
call option for £1,450,000.

October 31, December 31, 2020 January 31, 2021

2020
Strike price P 12.60 P 12.60 P 12.60
Spot rate P 12.61 P 12.62 P 12.64
Forward rate P 12.72 P 12.77 P 12.78
Fair value of option ? P 34,000 ?

41: The foreign exchange gain or loss on option contract due to change in time value on December 31,
2020: _________________

42. the foreign exchange gain or loss due to change in intrinsic value on January 31, 2021 : __________

43:
On November 3, 2020, SS Company entered into a firm commitment to sell a machinery . Delivery and
passage of title would be on February 28, 2021 at the price of $15,750 Singapore dollars. On the same
date, SS Company entered into a 120-day forward contract with BDO to sell the $ 15,750 Singapore
dollars. Exchange rate were as follows:

Spot rate Forward rate

November 3, 2020 P 46.25 P 44.30
December 31, 2020 P 47.40 P 46.70
February 28, 2021 P 49.50 P 49.50

How much is the foreign exchange gain or loss recognized by SS Company on the firm commitment on
December 31, 2020? _____________________

44. On November 1, 2020 REAR took delivery from US firm of inventory costing US$100,000. Payment
is due on January 30, 2021. Concurrently REAR paid P 900 cash to acquire a 90-day call option for
US$100,000.

Nov. 1, 2020 Dec. 31, 2020 Jan. 30, 2021

Spot rate 1.2 1.22 1.23
Strike price 1.2 ? ?
FV of call option ? 2,200 ?

What is the net forex gain (loss) to be recognized by REAR on December 31, 2020? __________

45. – 46:
On October 1, 2020, JYM Company ordered some equipment from a supplier for 200,000 baht. Delivery
and payment is to occur on November 30, 2020. The spot rates on October 1 and November 30 are P
1.50 and P 1.30. The October 1, 2020 forward rate for November 30 settlement is P 1.35.

45. If the company does not hedge the commitment, at what amount is the equipment recorded on the
books on November 30, 2020? ________________

46. If the company acquires on October 1, 2020 a forward contract to hedge any unfavorable changes in
fair value of the equipment, at what amount is the equipment recorded on the books on November
30, 2020? . ________________
47 – 48:
On October 1, 2020, CTC Company took delivery from a foreign firm of inventory costing 1,000,000
LCU. Payment is due on January 30, 2021. Concurrently, CTC Company paid P 1,900 cash to
acquire a 120-day call option for 1,000,000 LCU.

10/1/20 12/31/20 1/30/21

Spot rate (market price) P 2.00 P 2.30 P 2.40
Strike price (exercise price) 2.00 2.00 2.00
Fair value of call option P1,900 P 4,200 P 5,000

47. the entry to record receipt of inventory on October 1, 2020:

48. the journal entry on December 31, 2020, related to Hedged item.

49 – 50:
SBC Company sold merchandise for 315,000 pounds to a customer in London on November 1, 2020.
Collection in British pounds was due on January 30, 2021. On the same date , SBC entered into a 90-
day futures contract to sell 315,000 pounds to Metro Bank. Exchange rates for pound on different dates
are as follows:

November 1, 2020 December 31, 2020 January 30, 2021

Spot rate P 51.3 P 52.6 P 51.8
30-day futures P 52.2 P 52.4 P 53.1
60 day futures P 51.7 P 52.1 P 52.5
90-day futures P 50.5 P 52.5 P 53.3

49. the journal entry on November 1, 2020 to record sales.

50. the journal entry on December 31, 2020, related to Hedging instrument.

End

Prepared by:
EDNA L. BERNAL
` Subject Professor
Date: _5/18/2021__

NOTED:
IAN V. ARANEL, MBA
Chair, Business and Management Education
Date: _______________