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1

Which of the following financial instruments or other contracts is not specifically excluded from the definition of derivative instruments in ASC Topic 815?
a. Call (put) option.
b. Adjustable rate loans.
c. Equity securities.
d. Leases.

Call (put) option.

2

Regarding concentrations of credit risk, an entity must disclose all of the following except:
a. Information about the shared activity, region, or economic characteristic of the group.
b. Amount of accounting loss that the entity would incur as a result of the concentrated party’s failure to perform according to the terms of the contracts.
c. Information regarding entity’s policy of requiring collateral.
d. Identity of all parties.

Identity of all parties.

3

Which of the following is not an underlying, according to ASC Topic 815?
a. An interest rate index.
b. A security price.
c. An average daily temperature.
d. The other three choices could each be an underlying.

The other three choices could each be an underlying.

4

A derivative financial instrument is best described as

A contract that has its settlement value tied to an underlying notional amount.

5

Which of the following is not a derivative financial instrument?
a. Interest rate and foreign currency swaps
b. Trade accounts receivable.
c. Option contract.
d. Outstanding loan commitments written.

Trade accounts receivable.

6

For an unrecognized firm commitment to qualify as a hedged item all of the following conditions must be met except
a. The item being hedged must trade on an organized exchange.
b. Be binding on both parties.
c. Contain a nonperformance clause that makes performance probable.
d. Be specific with respect to all significant terms.

The item being hedged must trade on an organized exchange.

7

Under IFRS, all of the following are types of hedges except for:
a. Cash flow hedge.
b. Fair value hedge.
c. Foreign currency hedge.
d. Hedge of net investment.

Foreign currency hedge.

8

Dale, Inc., a US corporation, bought machine parts from Kluger Company of Germany on March 1, year 2, for 30,000 euros, when the spot rate for euros was $1.10. Dale’s year-end was March 31, year 2, when the spot rate for euros was $1.07. Dale bought 30,000 euros and paid the invoice on April 20, year 2, when the spot rate was $1.12. How much should be shown in Dale’s income statements as foreign exchange transaction gain or loss for the years ended March 31, year 2 and year
3?
Year 2 Year 3
a. $0 $0
b. $0 $900 loss
c. $900 loss $0
d. $900 gain $1,500 loss

$900 gain $1,500 loss

9

Which of the following qualifies as a hybrid instrument that would require bifurcation under ASC Topic 815, Derivatives and Hedging?
I. A bond payable with an interest rate based on the S & P 500 Index.
II. An equity instrument with a call option, allowing the issuing company to buy back the stock.

Both I and II.

10

On July 1, year 2, Stone Company lent $120,000 to a foreign supplier, evidenced by an interest-bearing note due on July 1, year 3. The note is denominated in the currency of the borrower and was equivalent to 840,000 local currency units (LCU) on the loan date. The note principal was appropriately included at $140,000 in the receivables section of Stone’s December 31, year 2 balance sheet. The note principal was repaid to Stone on the July 1, year 3 due date when the exchange rate was 8 LCU to $1. In its income statement for the year ended December 31, year 3, what amount should Stone include as a foreign currency transaction gain or loss?

$35,000 loss.

11

An example of a notional amount is

Number of barrels of oil.

12

On September 22, year 2, Yumi Corp. purchased merchandise from an unaffiliated foreign company for 10,000 units of the foreign company’s local currency. On that date, the spot rate was $.55. Yumi paid the bill in full on March 20, year 3, when the spot rate was $.65. The spot rate was $.70 on December 31, year 2. What amount should Yumi report as a foreign currency transaction loss in its income statement for the year ended December 31, year 2?

$1,500

13

Disclosures related to financial instruments, both derivative and nonderivative, that are used as hedging instruments must
I. Include information on risk management policies.
II. Be separated by type of hedge.

Both I and II

14

Which hedge of the following foreign currency items is not accounted for as either a fair value hedge or a cash flow hedge?
a. Foreign currency denominated forecasted transactions.
b. Net investments in foreign operations.
c. Unrecognized firm commitments.
d. Available-for-sale securities.

Net investments in foreign operations.

15

Disclosure of credit risk of financial instruments with off-balance-sheet risk does not have to include
a. The specific names of the parties associated with the financial instrument.
b. The loss of financial instruments held.
c. The amount of accounting loss the entity would incur should any party to the financial instrument fail to perform.
d. The entity’s policy of requiring collateral or security.

The specific names of the parties associated with the financial instrument.

16

When a company elects not to bifurcate a hybrid instrument and accounts for the hybrid instrument at fair value, which method(s) of disclosure are permissable?
I. As a separate line item for fair value and non—fair value instruments on the balance sheet.
II. As an aggregate amount of all hybrid instruments on the balance sheet.
III. As an aggregate amount of all hybrid instruments with the amount of the hybrid instruments at fair value shown in parentheses on the balance sheet.
IV. As a footnote disclosure with elected amounts.

I and III.

17

Financial instruments may be recognized as

Either assets or liabilities until settlement.

18

Which of the following is not a type of foreign currency hedge?
a. A recognized asset or liability.
b. An unrecognized firm commitment.
c. A forecasted transaction.
d. An available-for-sale security.

A recognized asset or liability.

19

Which of the following is not required to be accounted for under ASC Topic 815, Derivatives and Hedging?
a. Interest rate caps.
b. Futures contracts.
c. Employee stock options.
d. Options to purchase or sell exchange-traded securities.

Employee stock options.

20

On October 1 of the current year, a US company sold merchandise on account to a British company for 2,000 pounds (exchange rate, 1 pound = $1.43). At the company’s December 31 fiscal year-end, the exchange rate was 1 pound = $1.45. The exchange rate was 1 pound = $1.50 on collection in January of the subsequent year. What amount would the company recognize as a gain (loss) from foreign currency translation when the receivable is collected?

$ 100

21

When in its financial statements should a company disclose information about its concentration of credit risk?

The notes to the financial statements.

21

When in its financial statements should a company disclose information about its concentration of credit risk?

The notes to the financial statements.

22

When practicable to estimate, an entity must disclose the value of financial instruments at

Fair value.

22

When practicable to estimate, an entity must disclose the value of financial instruments at

Fair value.

23

On September 1, year 1, Nelson Corp. received an order for equipment from a foreign customer for 300,000 local currency units (LCU) when the US dollar equivalent was $192,000. Nelson shipped the equipment on October 15, year 1, and billed the customer for 300,000 LCU when the US dollar equivalent was $200,000. Nelson received the customer’s remittance in full on November 16, year 1, and sold the 300,000 LCU for $210,000. In its income statement for the year ended December 31, year 1, Nelson should report as part of net income a foreign exchange transaction gain of

$10,000

23

On September 1, year 1, Nelson Corp. received an order for equipment from a foreign customer for 300,000 local currency units (LCU) when the US dollar equivalent was $192,000. Nelson shipped the equipment on October 15, year 1, and billed the customer for 300,000 LCU when the US dollar equivalent was $200,000. Nelson received the customer’s remittance in full on November 16, year 1, and sold the 300,000 LCU for $210,000. In its income statement for the year ended December 31, year 1, Nelson should report as part of net income a foreign exchange transaction gain of

$10,000

24

Which of the following is not a distinguishing characteristic of a derivative instrument?
a. Terms that require or permit net settlement.
b. One or more underlyings and notional amounts.
c. No initial net investment.
d. Must be ‘highly effective’ throughout its life.

Must be ‘highly effective’ throughout its life.

24

Which of the following is not a distinguishing characteristic of a derivative instrument?
a. Terms that require or permit net settlement.
b. One or more underlyings and notional amounts.
c. No initial net investment.
d. Must be ‘highly effective’ throughout its life.

Must be ‘highly effective’ throughout its life.

25

Gains and losses on the hedged asset/liability and the hedged instrument for a fair value hedge will be recognized

In current earnings.

25

Gains and losses on the hedged asset/liability and the hedged instrument for a fair value hedge will be recognized

In current earnings.