Question

Problem 15.6A A Comprehensive Problem: Journalizing Exchange Rate Effects (LO15-4, LO15-5, LO15-6)

Wolfe Computer is a U.S. company that manufactures portable personal computers. Many of the components for the computer are purchased abroad, and the finished product is sold in foreign countries as well as in the United States. Among the recent transactions of Wolfe are the following:

Oct.	28		Purchased from Mitsutonka, a Japanese company, 20,000 disk drives. The purchase price was ¥186,000,000, payable in 30 days. Current exchange rate, $0.0105 per yen. (Wolfe uses the perpetual inventory method; debit the Inventory of Raw Materials account.)
Nov.	9		Sold 700 personal computers to the Bank of England for £593,939 due in 30 days. The cost of the computers, to be debited to the Cost of Goods Sold account, was $518,000. Current exchange rate, $1.65 per British pound. (Use one compound journal entry to record the sale and the cost of goods sold. In recording the cost of goods sold, credit Inventory of Finished Goods.)
Nov.	27		Issued a check to Inland Bank for $1,836,000 in full payment of account payable to Mitsutonka.
Dec.	2		Purchased 10,000 gray-scale monitors from German Optical for €1,170,000, payable in 60 days. Current exchange rate, $0.7030 per euro. (Debit Inventory of Raw Materials.)
Dec.	9		Collected dollar-equivalent of £593,939 from the Bank of England. Current exchange rate, $1.63 per British pound.
Dec.	11		Sold 10,000 personal computers to Computique, a Swiss retail chain, for SFr23,333,333, due in 30 days. Current exchange rate, $0.6000 per Swiss franc. The cost of the computers, to be debited to Cost of Goods Sold and credited to Inventory of Finished Goods, is $7,400,000.

Required:

a. Prepare in general journal form the entries necessary to record the preceding transactions.

b. Prepare the adjusting entries needed at December 31 for the €1,170,000 account payable to German Optical and the SFr23,333,333 account receivable from Computique. Year-end exchange rates, $0.7000 per euro and $0.5980 per Swiss franc. (Use a separate journal entry to adjust each account balance.)

c. Compute the unit sales price of computers in U.S. dollars in either the November 9 or December 11 sales transaction. (The sales price is the same in each transaction.)

d. Compute the exchange rate for the yen, stated in U.S. dollars, on November 27.

Answer 1

a) Journal Entries DateGeneral Journal Oct. 28 | Inventory of Raw Materials (#186,000,000 * $0.0105 Debit (S)Credit (S) 1,953,000 1,953.000 Accounts Payable - Mitsutonka (To record the purchase of 20,000 disk drives on account from Mitsutonka) Accounts Receivable - Bank of England (5593,939 * S1.65 Cost of Goods Sold Nov. 9 979,999.35 518,000 Inventory of Finished Goods Sales Revenue 518,000 979,999.35 (To record the sale of 700 personal computers on account to the Bank of 1,953.000 Nov. 27 Accounts Payable Mitsutonka Cash Gain on Fluctuations in Foreign Exchange (S1.953.000 $1.836.000 1,836.000 117,000 (To record the payment to Mitsutonka for the raw materials purchased on October 24th. Dec. 2 Inventory of Raw Materials (1,170,000 *S0.7030 822,510 Accounts Payable - German Opticals (To record the purchase of 10,000 gray-scale monitors on account from German Opticals) 822,510

968,120.57 11.878.78 Dec. 9 Cash (S593, 939 S1.63 per pound) Loss on Fluctuations in Foreign Exchange (S979,999.35 - S968,120.57 979,999.35 Accounts Receivable - Bank of England (To record the receipt of cash from Bank of England for the personal computers sold on account on November 9th. Accounts Receivable-Computique (SFr 23,333,333 0.6000 per Swiss 13,999.999.80 7,400,000 Dec.11 Franc) Cost of Goods Sold Inventory of Finished Goods Sales Revenue 7,400,000 13,999,999.80 To record the sale of 10,000 personal computers on account to the Computique)

b) Adjusting Entries: DateGeneral Journal Debit (S)Credit (S) Dec 31 Accounts Payable Geman Gain on Fluctuations in Foreign Exchange [S822,510 E1,170,000 S0.7000) To record the adjustment of balance on the amount owed to German Opticals at the year end) Loss on Fluctuations in Foreign Exchange [S13,999,999.80 - (SFr 3,510 Dec 31 23,333,333 50 5980 46,666.67 Accounts Receivable - Computique (To record the adjustment of balance of the amount receivable from Computique at the year end) 46,666.67

c)

Unit Sale Price of Computers in U.S Dollars for November 9th Transaction:

Sale Price of 700 Personal Computers in British Pounds = £593,939

Sale Price of 700 personal computers in U.S Dollars = $979,999.35 (£593,939 * $1.65 per British Pound)

Sale price per personal computer or per unit = $ ($979,999.35 / 700 units or personal computers

= $1,400 per unit or per personal computer

d)

Exchange rate for the Yen stated in U.S Dollars on November 27:

Exchange rate for the Yen = Amount in U.S Dollars stated on November 27th / Actual amount in Yen from the first transaction

= $1,836,000 / ¥186,000,000

= $0.00987 per Yen