Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
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Question
Chapter 9, Problem 2Q
To determine
Explain in which manner the company will account foreign currency rate fluctuations when credit export sale is made for one month.
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A company makes an export sale denominated in a foreign currency and allows the customer one month to pay. Under the two-transaction perspective, accrual approach, how does the company account for fluctuations in the exchange rate for the foreign currency?
Accounting records of Company C are expressed in EUR. On 30 April 20XX, it sells goods to a foreign
company that requests the amount of the sale to be expressed in USD. No VAT to be charged. When the
invoice is sent to the client for an amount of USD 1.000, the exchange rate EUR / USD is 1. On 31 May
20XX, the client paid the invoice in USD on the EUR bank account so that the amount in USD is
immediately converted into EUR at the current exchange rate. The current exchange rate is 1EUR = 1,10
USD. Prepare the accounting journal entries for the sale and the repayment.
Which of the following statement is NOT true regarding a foreign currency transaction?
a. When a transaction is denominated in a foreign currency (FC) and measured in dollars, changes in exchange rates between the transaction date and the settlement date expose the domestic company to exchange gains or losses.
b. If an FC transaction is unsettled at the end of the accounting period, the exchange gains/losses should be accrued.
c. When a transaction is denominated and measured in dollars, changes in exchange rates do not expose the domestic company to exchange gains or losses.
d. Changes in exchange rates expose the domestic company to exchange gains or losses only when the company purchases goods from a foreign company.
Chapter 9 Solutions
Advanced Accounting
Ch. 9 - Prob. 1QCh. 9 - Prob. 2QCh. 9 - What factors create a foreign exchange gain on a...Ch. 9 - In what way is the accounting for a foreign...Ch. 9 - Prob. 5QCh. 9 - How does a foreign currency option differ from a...Ch. 9 - Prob. 7QCh. 9 - Why would a company prefer a foreign currency...Ch. 9 - How do companies report foreign currency...Ch. 9 - How does a company determine the fair value of a...
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