FUND.ACCT.PRIN.
25th Edition
ISBN: 9781260247985
Author: Wild
Publisher: RENT MCG
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Question
Chapter 15A, Problem 21E
To determine
Concept Introduction:
Foreign Exchange Rate: It refers to the price of one currency which is expressed in terms of the currency of another country. In other words, the foreign exchange rate is the rate at which the currency of two countries is exchanged.
To prepare:
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Journal entries for an account payable denominated in Mexican Pesos ($US weakens and strengthens)
Assume that your company purchases inventories from a Mexican supplier on December 15. The invoice specifies that payment is to be made on March 15 in Mexican Pesos (Peso) in the amount of 350,000
Pesos. Your company operates on a calendar year basis.
Assume the following exchange rates:
December 15 $0.046:1 Peso
December 31 $0.053:1 Peso
March 15
$0.050:1 Peso
Prepare the journal entries to record the purchase (assume perpetual inventory accounting), the required adjusting entry at December 31, and the payment on March 15.
General Journal
Date
Description
Debit
Credit
Accounts payable
Accounts payable
Dec 15 Inventory
Dec 31 Foreign currency transaction loss
Mar 15 Accounts payable
÷
16,100
0
0
16,100
2,450
0
0
2,450
28,000 ×
0
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0
10,500 x
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0
17,500
Journal entries for an accounts receivable denominated in Swiss Francs ($US strengthens and weakens)
Assume that your company sells products to a customer located in Switzerland on November 20. The invoice specifies that payment is to be made on February 20 in Swiss Francs (CHF) in the amount of CHF 250,000. Your company
operates on a calendar year basis.
Assume the following exchange rates:
November 20 $1.12:1CHF
December 31 $1.09:1CHF
February 20 $1.11:1CHF
Prepare the journal entries to record the sale (ignore cost of goods sold), the required adjusting entry at December 31, and the receipt of payment February 20.
Date
Description
Credit
11/20 Accounts receivable
Sales
12/31 Foreign currency transaction loss
Accounts receivable
2/20 Cash
Accounts receivable
Accounts receivable
→ ✓
✓
✓
+
→
✔
✓
→
Debit
250,000 x
0 ✓
10,000 *
0✔
277,500✔
0✓
0✔
0✔
250,000 *
0✔
10,000 x
0 ✓
277,500 *
0 x
Journal entries for an accounts receivable denominated in Swiss Francs ($US strengthens and weakens)
Assume that your company sells products to a customer located in Switzerland on November 20. The invoice specifies that payment
is to be made on February 20 in Swiss Francs (CHF) in the amount of CHF 250,000. Your company operates on a calendar year basis.
Assume the following exchange rates:
November 20 $1.12:1CHF
December 31 $1.09.1CHF
February 20 $1.11:1CHF
Prepare the journal entries to record the sale (ignore cost of goods sold), the required adjusting entry at December 31, and the receipt
of payment February 20.
Description
Date
11/20 Accounts receivable
Sales
12/31 Foreign currency transaction loss
Accounts receivable
2/20 Cash
Accounts receivable
Accounts receivable
Debit
+ ✓ 250,000 x
+ ✓
✓
# ✓
0✓
10,000 x
0✓
÷ ✓
277,500✔
ooo
4
x
0✔
0✓
Credit
0✓
250,000 x
0✓
10,000 x
277,500 x
0x
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