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Knowledge of Advanced accounting (Tenth edition): Part 2

(BQ) Continued part 1, part 2 of document Knowledge of Advanced accounting (Tenth edition) has contents: Foreign currency transactions and hedging foreign exchange risk, foreign currency transactions and hedging foreign exchange risk, accounting for state and local governments, accounting for estates and trusts,. and other contents. Invite you to refer. | www.downloadslide.net chapter Foreign Currency Transactions and Hedging Foreign Exchange Risk Today international business transactions are a regular occurrence. In its 2008 annual report Lockheed Martin Corporation reported export sales of 5.9 billion representing 14 percent of total sales. Even small businesses are significantly involved in transactions occurring throughout the world as evidenced by this excerpt from Cirrus Logic Inc. s 2008 Annual Report Export sales principally to Asia include sales to U.S.-based customers with manufacturing plants overseas and represented 62 percent 62 percent and 66 percent of our net sales in fiscal years 2008 2007 and 2006 respectively. Collections from export sales or payments for imported items may be made not in U.S. dollars but in pesos pounds yen and the like depending on the negotiated terms of the transaction. As the foreign currency exchange rates fluctuate so does the U.S. dollar value of these export sales and import purchases. Companies often find it necessary to engage in some form of hedging activity to reduce losses arising from fluctuating exchange rates. At the end of fiscal year 2008 as part of its foreign currency hedging activities Textron Inc. reported having outstanding foreign currency forward contracts and options with a notional value of 1.0 billion. This chapter covers accounting issues related to foreign currency transactions and foreign currency hedging activities. To provide background for subsequent discussions of the accounting issues the chapter begins by describing foreign exchange markets. The chapter then discusses accounting for import and export transactions followed by coverage of various hedging techniques. Because they are most popular the discussion concentrates on forward contracts and options. Understanding how to account for these items is important for any company engaged in international transactions. 9 LEARNING OBJECTIVES After studying this chapter you should be able to LO1 .