Question

A U.S. company, G. Marx Co., purchases and receives video games from a Japanese company, Saki Corporation, on October 20, Year 7. The transaction is denominated in yen and calls for Marx to pay Saki 2 million yen on January 15, Year 8. The spot rate for yen is $.01015 at the time of the transaction. The spot rate is $.01005 on October 31, Year 7, Marx's fiscal year end, and $.01030 on January 15, Year 8.

G. Marx Co. has two wholly owned subsidiaries, H. Marx of Canada and C. Marx of France. Functional currencies are the Canadian dollar for H. Marx and the euro for C. Marx. However, C. Marx keeps its books in a currency that is not the functional currency or the reporting currency.

G. Marx also recently disposed of a long-term investment in Z. Marx of Mexico, a consolidated entity whose functional currency was the peso.

Enter the appropriate amounts for the following journal entries recorded by Marx Corporation for its transaction with Saki Corporation.

To prepare each required journal entry:

• Enter the corresponding debit or credit amount in the associated column.
• Round all amounts to the nearest whole number.
• Not all rows in the table might be needed to complete each journal entry.
• If no journal entry is needed, check the “No entry required” box at the top of the table as your respons

Answer 1

Pursuant to IAS 21 The Effects of Changes in Foreign Exchange Rates, the foreign currency transaction initial recognised in the functional currency, by applying spot exchange rate at the date of the transaction.

At end reporting period foreign currency monetary items are translated into the functional currency using the closing rate.

The Account Payable is "monetary item" and hence it is revalued at period end with closing rate.

Further when revaluation is carried out it results into unrealized foreign exchange gain which is reversed next year so that the measurement of realized and unrealized gain accounted appropriately

Date	Accounts	Debit	Credit	Basis of Calculation
Oct 20 7	Purchase	20,300.00		2,000,000*0.01015
	Saki Corporation		20,300.00
	(Purchase of goods for Yen 2M)
Oct 31 7	Saki Corporation	200.00		(0.01005-0.01015)*2,000,000
	Unrealized Foreign Exchange Gain		200.00
	(Revaluation of Monetary item on year end)
Jan 1 8	Unrealized Foreign Exchange Gain	200.00
	Saki Corporation		200.00
	(Reversal of revaluation of Monetary item at year beginning)
Jan 15 8	Saki Corporation	20,300.00
	Bank		20,600.00	2,000,000*0.01030
	Realized Foreign Exchange Loss	300.00		(20,600-20,300)
	(Payment of Yen 2M)

The additional information provided in relation to disposal of long term investment can be entered into Journal however no information is provided in respect of values.

The other information provided of two subsidiaries H. Marx of Canada & C.Marx of France is for information purpose and there is no underlying financial transaction provided hence no journal entry emerges from information provided.