Question

On May 8, 2015, Jett Company (a U.S. company) made a credit sale to Lopez (a Mexican company). The terms of the sale required Lopez to pay 1,340,000 pesos on February 10, 2016. Jett prepares quarterly financial statements on March 31, June 30, September 30, and December 31. The exchange rates for pesos during the time the receivable is outstanding follow.

May 8, 2015	$0.1855
June 30, 2015	0.1864
September 30, 2015	0.1875
December 31, 2015	0.1858
February 10, 2016	0.1897

Compute the foreign exchange gain or loss that Jett should report on each of its quarterly statements for the last three quarters of 2015 and the first quarter of 2016

June 30, 2015
September 30, 2015
December 31, 2015
March 31, 2016

Compute the amount reported on Jett's balance sheets at the end of its last three quarters

June 30
September 30
December 31

Answer 1

Jett Company will use spot rate (rate prevailing on the date of transaction) to record the amount of creditor on May 8, 2015

Spot rate = $0.1855/pesos

So, amount of creditor (Lopez) will be 1340000 pesos * $0.1855 = $248570

Computation of the foreign exchange gain or loss that Jett should report on each of its quarterly statements for the last three quarters of 2015 and the first quarter of 2016 :-

Date	Calculation	Amount ($)	Gain/Loss
June 30, 2015	$249,776 - $248,570	1,206	Gain
September 30, 2015	$251,250 - $249,776	1,474	Gain
December 31,2015	$248,972 - $251,250	2,278	Loss
February 10,2016	$254197 - $248972	5,226	Gain

While preparing quarterly financial statements, closing rate is used to record the current liabilities (creditors) in Balance Sheet.

So, rates given on the respective date of quarter end is used to record the amount of creditor in Balance sheet.

Compute the amount reported on Jett's balance sheets at the end of its last three quarters :-

Date	Calculation	Amount
June 30	1,340,000 * .1864	$249,776
September 30	1,340,000 * .1875	$251,250
December 31	1,340,000 * .1858	$248,972