Segment and Interim Reporting/Foreign Currency Transactions
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22. Quatro Corp. is engaged solely in manufacturing operations. The following data pertain to the operating
segments for the current year.
In its segment information for the current year, how many reportable segments does Quatro have?
a. Three.
b. Four.
c. Five.
d. Six.
1. Which of the following combinations correctly describes the relationship between foreign currency
transactions, exchange rate changes, and foreign exchange gains and losses?
Use the following information for problems 15 through 17.
On September 1, 2004, Jensen Company received an order to sell a machine to a customer in Canada at
a price of 100,000 Canadian dollars. The machine was shipped and payment was received on March 1,
2005. On September 1, 2004, Jensen Company purchased a put option giving it the right to sell 100,000
Canadian dollars on March 1, 2005, at a price of $80,000. Jensen Company properly designates the option
as a fair value hedge of the Canadian dollar firm commitment. The option cost $2,000 and had a fair
value of $2,300 on December 31, 2004. The fair value of the firm commitment is measured through reference
to changes in the spot rate. The following spot exchange rates apply:
15. What was the net impact on Jensen Company's 2004 income as a result of this fair value hedge of a
firm commitment?
a. -0-.
b. $680.30 decrease in income.
c. $300 increase in income.
d. $980.30 increase in income.
16. What was the net impact on Jensen Company's 2005 income as a result of this fair value hedge of a
firm commitment?
a. -0-.
b. $1,319.70 decrease in income.
c. $77,980.30 increase in income.
d. $78,680.30 increase in income.
17. What was the net increase or decrease in cash flow from having purchased the foreign currency option
to hedge this exposure to foreign exchange risk?
a. -0-.
b. $1,000 increase in cash flow.
c. $1,500 decrease in cash flow.
d. $3,000 increase in cash flow.
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