On December 1, 2013, Dresden Company (a U.S. company located in Albany, NY) purc

Question

On December 1, 2013, Dresden Company (a U.S. company located in Albany, NY) purchases inventory from a foreign supplier for 60,000 local currency units (LCU). Dresden will pay in 90 days after it sells this merchandise. It makes sales rather quickly and pays this entire obligation on January 28, 2014. Currency exchange rates for 1 LCU are as follows:

a. December 1, 2013 $0.88

b. December 31, 2013 $0.82

c. January 28, 2014 $.90

Prepare all journal entries for Dresden Company in connection with the purchase and payment.

Explanation / Answer

Dec 1 Merch Inv Dr 52800

Acct Payable Cr 52800

(60000*0.88 = 52800)

Dec31 Acct Payable Dr 3,600

Forex Acct Cr 3,600

(DIff of Exge rate = 60000*(0.88-0.82)

Jan 28 Acct Paybale Dr 49,200

Forex Acct Dr 4800

Cash Cr 54000

(60000*0.90= 54000)

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