Question

In: Accounting

Marko Company sold spray paint equipment to Spain for 4,000,000 pesetas (P) on October 1, with...

Marko Company sold spray paint equipment to Spain for 4,000,000 pesetas (P) on October 1, with payment due in six months. The exchange rates were


October 1, 20X6	1 peseta	=	$	0.0048
December 31, 20X6	1 peseta	=		0.0075
April 1, 20X7	1 peseta	=		0.0073

Required:
a. Did the dollar strengthen or weaken relative to the peseta during the period from October 1 to December 31? Did it strengthen or weaken between January 1 and April 1 of the next year?

b. Prepare all required journal entries for Marko as a result of the sale and settlement of the foreign transaction, assuming that its fiscal year ends on December 31. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Expert Solution

(a) Dollar has weakened during the period from October 1st to December 31. As it is evident from the exchange rate that the rate has been increased from 1peseta = $0.0048 to 1 peseta = $0.0075 which means peseta has strengthened during that period. If peseta has strengthened in relation to dollar, dollar would have weakened during the same period.

Dollar has strengthened during the period from January 1to April 1. As it is evident from the exchange rate that the rate has been decreased from 1peseta = $0.0075 to 1 peseta = $0.0073 which means peseta has weakened during that period. If peseta has weakened in relation to dollar, dollar would have strengthened during the same period.

(b) Journal entry on October 1st, 20x6( amount in $)

Debtors Account. Dr. 19,200

To Sales 19,200

( For being, sales accounted for 4,000,000 peseta @ $0.0048)

Journal entry on December 31, 20x6 (amount in $)

Debtors Account. Dr. 10,800

To Exchange gain. 10,800

(For being, exchange gain on increase in peseta exchange rate from $ 0.0048 to $0.0075 that is from $19,200 to $30,000 and the difference of $10,800 accounted at the year end)

Journal entry on April 1, 20x7 (amount in $)

Cash account. Dr 29,200

Exchange loss. Dr 800

To Debtors Account. 30,000

( For being, Marko company received payment from Spain for its sale at $0.0073 and the difference in exchange rate from December 31, 20x6 is recorded as exchange loss)

ekkarill92 answered 5 months ago

ABC Company sold equipment on October 1, 2018, to XYZ Company for £1,000,000. It agrees to...

ABC Company sold equipment on October 1, 2018, to XYZ Company for £1,000,000. It agrees to repurchase this equipment in July 2019, for a price of £1,100,000. The proper accounting treatment for this transaction based on Select one: a. relevance b. going concern c. comparability d. substance over form

On October 1, 2020, Pearl Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc....

On October 1, 2020, Pearl Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $171,200, 10% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Pearl’s financial statements are prepared on a calendar-year basis. Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for...

On October 1, 2020, Monty Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc....

On October 1, 2020, Monty Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $193,200, 10% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Monty’s financial statements are prepared on a calendar-year basis. Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for...

On October 1, 2020, Sage Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc....

On October 1, 2020, Sage Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $135,200, 8% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Sage’s financial statements are prepared on a calendar-year basis. Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for...

Bramble Company purchased equipment for $220,800 on October 1, 2020. It is estimated that the equipment...

Bramble Company purchased equipment for $220,800 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $12,000. Estimated production is 36,000 units and estimated working hours are 20,000. During 2020, Bramble uses the equipment for 500 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Bramble is on a calendar-year basis ending December 31. (Round rate per hour and rate...

Blue Company purchased equipment for $266,000 on October 1, 2020. It is estimated that the equipment...

Blue Company purchased equipment for $266,000 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $14,000. Estimated production is 40,000 units and estimated working hours are 20,000. During 2020, Blue uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Blue is on a calendar-year basis ending December 31. (a) Straight-line method for 2020 $enter...

Sandhill Company purchased equipment for $235,200 on October 1, 2017. It is estimated that the equipment...

Sandhill Company purchased equipment for $235,200 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $13,440. Estimated production is 39,600 units and estimated working hours are 20,000. During 2017, Sandhill uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Sandhill is on a calendar-year basis ending December 31. (Round rate per hour and rate...

Oriole Company purchased equipment for $238,400 on October 1, 2020. It is estimated that the equipment...

Oriole Company purchased equipment for $238,400 on October 1, 2020. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $15,200. Estimated production is 36,000 units and estimated working hours are 20,000. During 2020, Oriole uses the equipment for 500 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Oriole is on a calendar-year basis ending December 31. (Round rate per hour and rate...

Flint Company purchased equipment for $231,080 on October 1, 2017. It is estimated that the equipment...

Flint Company purchased equipment for $231,080 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $13,080. Estimated production is 40,000 units and estimated working hours are 20,300. During 2017, Flint uses the equipment for 520 hours and the equipment produces 1,000 units. Compute depreciation expense under each of the following methods. Flint is on a calendar-year basis ending December 31. (a) Straight-line method for 2017 =...

Windsor Company purchased equipment for $251,930 on October 1, 2017. It is estimated that the equipment...

Windsor Company purchased equipment for $251,930 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $14,160. Estimated production is 40,300 units and estimated working hours are 20,100. During 2017, Windsor uses the equipment for 530 hours and the equipment produces 1,100 units. Compute depreciation expense under each of the following methods. Windsor is on a calendar-year basis ending December 31. (Round rate per hour and rate...