Question

Merchant Company had the following foreign currency transactions:

1. On November 1, 20X6, Merchant sold goods to a company located in Munich, Germany. The receivable was to be settled in European euros on February 1, 20X7, with the receipt of €290,000 by Merchant Company.
2. On November 1, 20X6, Merchant purchased machine parts from a company located in Berlin, Germany. Merchant is to pay €145,000 on February 1, 20X7.

The direct exchange rates are as follows:

November 1, 20X6	€1 = $	0.60
December 31, 20X6	€1 = $	0.62
February 1, 20X7	€1 = $	0.58

Required:
Record the T-accounts for the following transactions (Record the transactions in the given order.)

1. The November 1, 20X6, export transaction (sale).
2. The November 1, 20X6, import transaction (purchase).
3. The December 31, 20X6, year-end adjustment required of the foreign currency–denominated receivable of €290,000.
4. The December 31, 20X6, year-end adjustment required of the foreign currency–denominated payable of €145,000.
5. The February 1, 20X7, adjusting entry to determine the U.S. dollar–equivalent value of the foreign currency receivable on that date.
6. The February 1, 20X7, adjusting entry to determine the U.S. dollar–equivalent value of the foreign currency payable on that date.
7. The February 1, 20X7, settlement of the foreign currency receivable.
8. The February 1, 20X7, settlement of the foreign currency payable.

0. He reviudly I, ZUAI, Selene LUI LITE IUILIYil CuiTency payaule. Foreign Currency Units (€) Accounts Receivable (6) 211X7 11/1/X6 Bal. 2/2/X7 Bal. 12/31/X6 Bal. 2/2/X7 Bal. 2/1/X7 Bal. 2/2/X7 Bal. 2/2/X7 Accounts Payable (€) Foreign Currency Transaction Loss 2/1/X7 Bal. 12/31/X6 Bal. 2/2/X7 Bal. 2/1/X7 Bal. 2/2/X7 Bal 2/2/X7 Bal 212/X7 Foreign Currency Transaction Gain Bal, 2/2/X7 Bal. 2/2/X7 Bal. 2/2/X7

Answer 1

Accounts Receivables				Foreign Currency Transaction Loss
11/1/2016	Amount in $	Amount in Euro		12/31/2016	Amount in $
Sales (Euros 290,000 @ $0.60 per Euro)	174,000	290,000		Loss on restatement of Payables (145000* (0.6-0.62))	(2,900)
Foreign Currency Transaction Gain (Balancing Fingure)	5,800	-			(2,900)
Balance as on 12/31/2016 (Euros 290,000 @ $0.62 per Euro)	179,800	290,000
				2/1/2017
Opening Balance as on 1/1/2017	179,800	290,000		Loss on restatement of receivables (290,000*(0.58-0.62))	(11,600)
Foreign Currency Transaction Loss	(11,600)	-			(11,600)
Balance as on 2/1/2017 (Euros 290,000 @ $0.58 per Euro)	168,200	290,000
Less: amount received in euros		290,000
Balance as on 2/2/2017		-		Foreign Currency Transaction Loss
				12/31/2016	Amount in $
Accounts Payable				Gain on restatement of receivables (290,000* (0.62-0.60))	5,800
11/1/2016	Amount in $	Amount in Euro			5,800
Import (Euros 145,000 @ $0.60 per Euro)	87,000	145,000
Foreign Currency Transaction Loss (Balancing Fingure)	2,900	-		2/1/2017
Balance as on 12/31/2016 (Euros 145,000 @ $0.62 per Euro)	89,900	145,000		Gain on restatement of payables (145,000*(0.62-0.58))	5,800
					5,800
Opening Balance as on 1/1/2017	89,900	145,000
Foreign Currency Transaction Gain	(5,800)	-
Balance as on 2/1/2017 (Euros 145,000 @ $0.58 per Euro)	84,100	145,000
Less: amount paid in euros		145,000
Balance as on 2/2/2017		-