10. On July 15, Wallis Enterprises, a calendar –year U.S. manufacturer, purchase

Question

10. On July 15, Wallis Enterprises, a calendar –year U.S. manufacturer, purchased 100 million yen worth of parts from the Yokoyama Company paying 20 percent down, the balance to be paid in three months. Interest at the annual rate of 10 percent is payable on the unpaid foreign currency balance. The exchange rate on July 15 was $1.00 = Y125. On October 15, the exchange rate was $1,00 = Yen 110. Required: Prepare journal entries in U.S. dollars to record the incurrence and settlement of this foreign currency transaction assuming: (1) a single –transaction approach. (2) A two-transaction approach.

Explanation / Answer

1. Single transaction approach:

2. Two transaction approach:

in this gain or loss on exchange difference are accounted to seperate accounts rather purchases account:

Date Dr/Cr Account Amount(in USD) Explanation July 15 Dr Purchases A/c 800000 100M Yen/125 Cr Bank 160000 20% payment= 100M*20%/125 Cr Accounts payable 640000 Balance 80M yen/125 Oct 15 Dr Purchases A/c 87,272.73 Exchange difference = 80M yen/110 - 80M yen/125 Dr Accounts payable 640,000.00 Balance paid Dr Interest expense A/c 18,181.82 80M Yen*10%/110 *3/12 Cr Bank 745,454.55 20% payment= 100M*20%/125

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