Question

Harris Inc. had the following transactions:

1. On May 1, Harris purchased parts from a Japanese company for a U.S. dollar equivalent value of $6,000 to be paid on June 20. The exchange rates were

May 1	1 yen	=	$	0.0070
June 20	1 yen	=		0.0075

2. On July 1, Harris sold products to a Brazilian customer for a U.S. dollar equivalent of $10,400, to be received on August 10. Brazil’s local currency unit is the real. The exchange rates were

July 1	1 real	=	$	0.20
August 10	1 real	=		0.22

Required:
a. Assume that the two transactions are denominated in U.S. dollars. Prepare the entries required for the dates of the transactions and their settlement in U.S. dollars. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Assume that the two transactions are denominated in the applicable local currency units of the foreign entities. Prepare the entries required for the dates of the transactions and their settlement in the local currency units of the Japanese company (yen) and the Brazilian customer (real). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations and final answers to nearest whole number.)

Answer 1

Case a,

1.

Date	Particulars	Amount
May-01	Purchases A/c….......Dr To Creditor A/c	$6,000 $6,000
Jun-20	Creditor A/c…..........Dr To Bank A/c	$6,000 $6,000

2.

Date	Particulars	Amount
Jul-01	Debtor A/c…............Dr To Sales A/c	$10,400 $10,400
Aug-10	Bank A/c…...............Dr To Debtor A/c	$10,400 $10,400

If the amount is paid/ received in home currency ($) there will be no forex loss or gain.

Case b.

1.

Date	Particulars	Amount
May-01	Purchases A/c….......Dr To Creditor A/c	$6,000 $6,000
Jun-20	Creditor A/c…..........Dr Forex Loss A/c….......Dr To Bank A/c	$6,000 $429 $6,429

Working Note:

1. Purchase

$ per yen on 1st May	0.007
Transaction Amount in Yen (6000/.007)	857143
$ per yen on 20th June	0.0075
Settlement Amount in $ (857143 *0.0075)	$6,429

2.

Date	Particulars	Amount
Jul-01	Debtor A/c…............Dr To Sales A/c	$10,400 $10,400
Aug-10	Bank A/c…...............Dr To Debtor A/c To Forex Gain A/c	$11,440 $10,400 $1,040

Working Note:

$ per real on 1st July	0.2
Transaction Amount in real (10400/.2)	52000
$ per yen on 10th Aug	0.22
Settlement Amount in Yen (52000 * .22)	11440

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Thank you.