Account BalancesMerchant Company had the following foreign currency transactions:1. On Nov...

Account Balances

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 €250,000 by Merchant Company.

2. On November 1, 20X6, Merchant purchased machine parts from a company located in Berlin, Germany. Merchant is to pay €125,000 on February 1, 20X7.

The direct exchange rates are as follows:

Required

a.Prepare T-accounts for the following five accounts related to these transactions: Foreign Cur­rency Units (€), Accounts Receivable (€), Accounts Payable (€), Foreign Currency Transac­tion Loss, and Foreign Currency Transaction Gain.

b.Within the T-accounts you have prepared, appropriately record the following items:

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 €250,000.

4. The December 31, 20X6, year-end adjustment required of the foreign currency- denominated payable of €125,000.

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.