Question

In: Accounting

Peerless Corporation (a U.S. company) made a sale to a foreign customer on September 15, for...

Peerless Corporation (a U.S. company) made a sale to a foreign customer on September 15, for 124,000 crowns. It received payment on October 15. The following exchange rates for 1 crown apply:

September 15 $ 0.60
September 30 0.66
October 15 0.61

Prepare all (4) journal entries for Peerless in connection with this sale, assuming that the company closes its books on September 30 to prepare interim financial statements. (If no entry is required for a transaction/event, select " No journal entry required" in the first account field.)

Solutions

Expert Solution

1) 15 September Foreign Debtor A/C..................................................................Dr. $74,400

To Sales A/C $74,400

(Being sales made on credit to a foreign customer)

2) 30 September Foreign Debtor A/C...................................................................Dr. $7440

To Foreign exchange differnce A/C(working note: 1) $7440

(Being gain on exchange difference of 0.06/per dollar debited to foreign debtor A/C)

3) 15 October   Foreign exchange differnce A/C(working note: 2).................Dr. $6200

To Foreign Debtor A/C $6200

(Being loss on exchange difference of 0.05/per dollar credited to foreign debtor A/C)

4) 15 October Bank A/C.....................................................................................Dr. $75,640

To Foreign Debtor A/C(124000 crowns X $0.61) $75,640

(Being payment from debtors received)

  

WORKING NOTES:

1. Exchange rate on 15th september = $0.6

Exchange rate on 30th september = $0.66

Difference = $0.06(GAIN)

Gain of exchange difference = 124000 crowns X $0.06

= $7440

2. Exchange rate on 30th September = $0.66

Exchange rate on 15th October = $0.61

Difference = $0.05(LOSS)

Gain of exchange difference = 124000 crowns X $0.05

= $6200


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