Question

On April 1, A. C. Corporation, a calendar-year U.S. electronics manufacturer, buys 32.5 mil- lion yen worth of computer chips from the Hidachi Company paying 10 percent down, the balance to be paid in 3 months. Interest at 8 percent per annum is payable on the unpaid foreign currency balance. The U.S. dollar/ Japanese yen exchange rate on April 1 was $1.00 = ¥93.6250; on July 1 it was $1.00 = ¥93.5283. Required: Prepare dated journal entries in U.S. dollars to record the incurrence and settlement of this foreign currency transaction assuming: a. A. C. Corporation adopts a single-transac- tion perspective, and b. it employs a two-transactions perspective.

Answer 1

A. C. Corporation Single Transaction basis Journal Enteries Date Particulars Apr-01 Inventory a/c Dr. To Accounts Payable (Inventory on account) 32.5*1000000 x 0.90/93.625 Debit in $ Credit in $ 312417 312417 Date April 1. Jul 1. 1$ 1 Yen ¥93.6250 0.01068 93.5283 0.01069 312417 323 Jul-01 Accounts Payable a/c Dr. Inventory a/c Dr. To Cash (Payment)32.5*1000000*0.9/93.5283 312740 Two Transaction basis 312417 312417 Apr-01 Inventory a/c Dr. To Accounts Payable (Inventory on account) 32.5*1000000 x 0.90/93.625 312417 323 Jul-01 Accounts Payable a/c Dr. Foreign Exchange Loss a/c Dr. To Cash (Payment )32.5*1000000*0.9/93.5283 312740