CHAPTER 6 INTERNATIONAL
ACCOUNTING STUDY GUIDE 2026
COMPLETE PRACTICE QUESTIONS AND
CORRECT ANSWERS WITH DETAILED
RATIONALES COMPREHENSIVE
FINANCIAL REPORTING AND GLOBAL
ACCOUNTING EXAM REVIEW
The number of U.S. dollars ($) today to buy one U.K. pound (£) six months
from now is called:
A. the prime rate.
B. the exact rate.
C. the spot rate.
D. the forward rate. - CORRECT ANSWER -D. the forward rate.
What is the requirement for reporting derivatives under international
accounting standards and U.S. GAAP?
A. They may be shown on the balance sheet at historical cost or at net
realizable value.
B. They may be shown on the balance sheet or they may be treated as off-
balance sheet investments.
,C. They must be shown on the balance sheet at historical cost.
D. They must be shown on the balance sheet at fair value. - CORRECT
ANSWER -D. They must be shown on the balance sheet at fair value.
Gracie Corporation had a Japanese yen receivable resulting from exports to
Japan and a Brazilian real payable resulting from imports from Brazil.
Gracie recorded foreign exchange gains related to both its yen receivable
and real payable. Did the foreign currencies increase or decrease in dollar
value from the date of the transaction to the settlement date?
Yen Real
A. Decrease Decrease
B. Decrease Increase
C. Increase Increase
D. Increase Decrease - CORRECT ANSWER -D. Increase Decrease
What is a "strike price?"
A. The difference between the wholesale rate and the retail rate for foreign
currency exchange
B. The exchange rate that is used to buy a foreign currency today
C. The price that will be paid for goods in a forward contract
D. The exchange rate that will be used if a foreign currency option is
executed - CORRECT ANSWER -D. The exchange rate that will be used if a
foreign currency option is executed
,How should U.S. companies record receivables and payables from
international trade that are denominated in foreign currencies?
A. Conservatism would dictate that liabilities should be recorded in the
currency in which they are payable, but assets should be recorded in U.S.
dollars, regardless of what currency will be received.
B. There should be separate receivable and payable accounts for each
currency that is used by the company.
C. All assets and liabilities of U.S. companies must be recorded in foreign
currency.
D. The company should choose any one currency to use for recording
receivable and payables so that there is consistency in the accounts. -
CORRECT ANSWER -B. There should be separate receivable and payable
accounts for each currency that is used by the company.
On November 1, Year 1, Black Lion Company forecasts the purchase of raw
materials from an Argentinian supplier on February 1, Year 2, at a price of
200,000 Argentinian pesos. On November 1, Year 1, Black Lion pays
$1,200 for a three-month call option on 200,000 Argentinian pesos with a
strike price of $0.35 per peso. The option is properly designated as a cash
flow hedge of a forecasted foreign currency transaction. On December 31,
Year 1, the option has a fair value of $900. The following spot exchange
rates apply:
Date U.S. Dollar per Argentinian Peso
November 1, Year 1 $0.35
December 31, Year 1 0.30
February 1, Year 2 0.36
, What is the net impact on Black Lion Company's Year 1 net income as a
result of this hedge of a forecasted foreign currency purchase?
A. A $300 decrease in net income.
B. An $800 decrease in net income.
C. $0.
D. A $200 increase in net income. - CORRECT ANSWER -A. A $300 decrease
in net income.
Reason: (1,200-900) Incorrect
Under U.S. GAAP, foreign exchange losses should be recorded by:
A. crediting "Foreign Exchange Loss".
B. debiting "Sales Revenue".
C. debiting "Foreign Exchange Loss".
D. debiting "Retained Earnings". - CORRECT ANSWER -C. debiting "Foreign
Exchange Loss".
What is the primary difference between a cash flow hedge and a fair value
hedge?
A. The cash flow hedge must completely offset the variability in cash flow
from the foreign currency receivable or payable.
B. The cash flow hedge can only be used to offset potential foreign currency
losses on accounts receivable.
ACCOUNTING STUDY GUIDE 2026
COMPLETE PRACTICE QUESTIONS AND
CORRECT ANSWERS WITH DETAILED
RATIONALES COMPREHENSIVE
FINANCIAL REPORTING AND GLOBAL
ACCOUNTING EXAM REVIEW
The number of U.S. dollars ($) today to buy one U.K. pound (£) six months
from now is called:
A. the prime rate.
B. the exact rate.
C. the spot rate.
D. the forward rate. - CORRECT ANSWER -D. the forward rate.
What is the requirement for reporting derivatives under international
accounting standards and U.S. GAAP?
A. They may be shown on the balance sheet at historical cost or at net
realizable value.
B. They may be shown on the balance sheet or they may be treated as off-
balance sheet investments.
,C. They must be shown on the balance sheet at historical cost.
D. They must be shown on the balance sheet at fair value. - CORRECT
ANSWER -D. They must be shown on the balance sheet at fair value.
Gracie Corporation had a Japanese yen receivable resulting from exports to
Japan and a Brazilian real payable resulting from imports from Brazil.
Gracie recorded foreign exchange gains related to both its yen receivable
and real payable. Did the foreign currencies increase or decrease in dollar
value from the date of the transaction to the settlement date?
Yen Real
A. Decrease Decrease
B. Decrease Increase
C. Increase Increase
D. Increase Decrease - CORRECT ANSWER -D. Increase Decrease
What is a "strike price?"
A. The difference between the wholesale rate and the retail rate for foreign
currency exchange
B. The exchange rate that is used to buy a foreign currency today
C. The price that will be paid for goods in a forward contract
D. The exchange rate that will be used if a foreign currency option is
executed - CORRECT ANSWER -D. The exchange rate that will be used if a
foreign currency option is executed
,How should U.S. companies record receivables and payables from
international trade that are denominated in foreign currencies?
A. Conservatism would dictate that liabilities should be recorded in the
currency in which they are payable, but assets should be recorded in U.S.
dollars, regardless of what currency will be received.
B. There should be separate receivable and payable accounts for each
currency that is used by the company.
C. All assets and liabilities of U.S. companies must be recorded in foreign
currency.
D. The company should choose any one currency to use for recording
receivable and payables so that there is consistency in the accounts. -
CORRECT ANSWER -B. There should be separate receivable and payable
accounts for each currency that is used by the company.
On November 1, Year 1, Black Lion Company forecasts the purchase of raw
materials from an Argentinian supplier on February 1, Year 2, at a price of
200,000 Argentinian pesos. On November 1, Year 1, Black Lion pays
$1,200 for a three-month call option on 200,000 Argentinian pesos with a
strike price of $0.35 per peso. The option is properly designated as a cash
flow hedge of a forecasted foreign currency transaction. On December 31,
Year 1, the option has a fair value of $900. The following spot exchange
rates apply:
Date U.S. Dollar per Argentinian Peso
November 1, Year 1 $0.35
December 31, Year 1 0.30
February 1, Year 2 0.36
, What is the net impact on Black Lion Company's Year 1 net income as a
result of this hedge of a forecasted foreign currency purchase?
A. A $300 decrease in net income.
B. An $800 decrease in net income.
C. $0.
D. A $200 increase in net income. - CORRECT ANSWER -A. A $300 decrease
in net income.
Reason: (1,200-900) Incorrect
Under U.S. GAAP, foreign exchange losses should be recorded by:
A. crediting "Foreign Exchange Loss".
B. debiting "Sales Revenue".
C. debiting "Foreign Exchange Loss".
D. debiting "Retained Earnings". - CORRECT ANSWER -C. debiting "Foreign
Exchange Loss".
What is the primary difference between a cash flow hedge and a fair value
hedge?
A. The cash flow hedge must completely offset the variability in cash flow
from the foreign currency receivable or payable.
B. The cash flow hedge can only be used to offset potential foreign currency
losses on accounts receivable.
