Write journal entries for the following series of foreign currency transactions:
ID: 2566114 • Letter: W
Question
Write journal entries for the following series of foreign currency transactions: a. On September 18, 2003, when the yen was valued at 225 to the dollar, a U.S. firm purchased transistors from a Japanese firm, and agreed to pay 6,750,000 yen on November 15, 2003. b. On October 26, 2003, the same firm purchased leather goods from a Mexican company, agreeing to pay 4 million pesos on December 15, 2003. On October 26, 2003, one peso was worth $.004. c. On November 24, 2003, the U.S. firm sold 375,000 worth of cotton to a British firm when the pound was worth $1.45. Payment was to be received on January 15, 2004. d. The following exchange rates prevailed on the dates below: __________________________________________________________________ November 15, 2003……………………………………………….$1.00 = 200 yen December 15, 2003……………………………………………… $1.00 = 275 pesos December 31, 2003……………………………………….………..$1.48 = 1 pound January 15, 2004…………………………………………….……..$1.42 = 1 pound Assume a December 31 fiscal year-end.
Please show all work in details
Explanation / Answer
Sept 18, 2003
Value in dollar = 6750000/225 = $30000
October 26, 2003
Value in Dollar = 4 million * 0.004 = $16000
November 15, 2003
Value in dollar = 6750000/200 = $33750
Loss on forward contract = $(33750-30000) = $3750
November 24, 2003
Value in dollar = 375000*1.45 = $543750
December 15, 2003
Value in dollar = 4 million/275 = $14545.45
Gain on forward contract = $(16000-14545.45) = $1454.54
January 15, 2004
Value in dollar = 375000*1.42 = $532500
Loss on forward contract = $(543750-532500) = $11250
*Note: For the fiscal year ending on Dec 31, 2003 the last journal entry is not required as it is on the account of Accounts receivables then.
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