1. Explain how each of the following transactions generates two entries Explain
ID: 1179384 • Letter: 1
Question
1. Explain how each of the following transactions generates two entries
Explain how each of the following transactions generates two entries-a credit and a debit-in the American balance of payments accounts, and describe how each entry would be classified: An American buys a share of German stock, paying by writing a check on an ?account with a Swiss bank An American buys a share of German stock, paying the seller with a check on an American bank. The Korean government carries out an official foreign exchange intervention in which it uses dollars held in an American bank to buy Korean currency from its citizens. A tourist from Detroit buys a meal at an expensive restaurant in Lyons, France, paying with a traveler's check. A California winemaker contributes a case of cabernet sauvignon for a London wine tasting. A U.S.-owned factory in Britain uses local earnings to buy additional machinery.Explanation / Answer
Hi. Please find below the complete answer:
(a) An American purchases a share of German stock and pays by writing a cheque on an
account with a Swiss bank.
Debit the Capital A/C (the purchase of German stock increases US assets held abroad)
Credit the Capital A/C (payment by the Swiss bank decreases US assets held abroad)
1(b) An American purchases a share of German stock and pays by writing a cheque on an
American bank.
Debit the Capital A/C (the purchase of German stock increases US assets held abroad)
Credit the Capital A/C (payment by American bank increases foreign assets held in US)
(c) The korean government carries out an official foreign exchange intervention in which it uses dollars held in an American bank to buy korean currency from its citizens. Debit the Capital A/C (sale of $ by korean government decreases foreign assets held in US) Credit the Capital A/C (purchase of $ by korean citizens increases foreign assets held inUS)
(d) A tourist from Detroit buys a meal at an expensive restaurant in France, paying with a
traveler
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