Reference no: EM132857953

Questions -

Q1. On November 1, 2018, Welch Inc. paid a premium to acquire call foreign exchange option for 270,000 HK dollars. The option is acquired to hedge the 2018 anticipated purchase of merchandise for 270,000 HK dollars. The option expires on March 30, 2019.

	Spot rate	Fair value of the option	Strike Price
11/1/2018	3.40	34,000	3.47
12/31/2018	3.67	78,000	3.47
3/31/2019	3.80	?	3.47

Compute the amount of gain or loss affecting OCI on December 31, 2018?

a) 54,000

b) (10,000)

c) 44,000

d) 0

Q2. In relation to the above problem, using split accounting, how much will the time value of the option be on March 30, 2019?

a) 54,000

b) (10,000)

c) 44,000

d) 0

Q3. The translation adjustment for the first year of operations of ABC Sub Co. amounted to a positive P1,882,500. Translation adjustment for the second year amounted to P577,500 debit. At what amount shall ABC Sub CO. present the account Cumulative Translation Adjustment for the second year?

a) 1,882,500 debit

b) 577,500 debit

c) 1,305,000 credit

d) 2,460,00 credit