Question

In: Accounting

A review of Ace Industries, a U.S. corporation, shows the following balances in accounts receivable and...

A review of Ace Industries, a U.S. corporation, shows the following balances in accounts receivable and accounts payable detail at September 30, 2014, their fiscal year end.

ACCOUNTS RECEIVABLE

Receivables denominated in U.S. dollar $426,000

Receivable denominated in 40,000 Australian dollar 43,000

Receivable denominated in 70,000 Canadian dollar 71,750

$ 540,750

ACCOUNTS PAYABLE

Payables denominated in U.S. dollar $ 107,000

Payable denominated in 50,000 Canadian dollar 51,250

Payable denominated in 200,000 Hong Kong dollar 26,500

$ 184,750

As Ace prepared to close their books, they noted that the September 30 exchange rates for the Australian dollar, Canadian dollar and Hong Kong dollar were $1.0366, $1.0301 and $0.1284, respectively.

Required:

Determine the exchange gain or loss to be included in the 2014 financial statements, and the amount of Accounts Receivable and Accounts Payable that will be included on the September 30, 2014 balance sheet.

Expert Solution

Answer:

Calculate Opening Exchnge Rate of Accounts Receiable:

Opening Exchange Rate for Australian Dollar

= 43,000/40,000

= $ 1.075

Opening Exchange Rate for Canadian Dollar

= 71,750/70,000

= $ 1.025

Calculate Opening Exchnge Rate of Accounts Payable:

Opening Exchange Rate for Canadian Dollar

= 51,250/50,000

= $ 1.025

Opening Exchange Rate for Hong Kong Dollar

= 26,500/200,000

= $ 0.1325

Exchange Gain (Loss) for Accounts Receivable :

Australian Dollar = ($ 1.0366 - $ 1.075) * 40,000

= (0.0384) * 40,000

= ($1536)

Canadian Dollar = ($ 1.0301 - $ 1.025) * 70,000

= (0.0051) * 70,000

= ($357)

Total Gain/(Loss) for Accounts Receivables = ($1536)-$357 = ($1179)

Exchange Gain / (Loss) for Accounts Payable:

Canadian Dollar = ($1.025 - $1.0301)* 50,000

= ($-0.0051)*50,000

=($255)

Hong Kong Dollar = ($0.1325 - $0.1284)* 200,000

= ($0.0041)*200,000

=$820

Total Gain / (Loss) for Accounts Payable = $ 820 -$255

= $ 565

Total Exchange Gain / (Loss) = ($1,179) + $ 565 = $(614)

Calculation of Accounts Receivables that will be included in Balance Sheet:

Receivables denominated in US dollar = $426,000

Receivables denominated in Australian dollars (40,000*$1.0366) = $41,464

Receivables denominated in Canadian dollars (70,000*$1.0301) = $72,107

Total Accounts Receivables = $ 539,751

Calculation of Accounts Payables that will be included in Balance Sheet:

Receivables denominated in US dollar = $107,000

Receivables denominated in Canadian dollars (50,000*$1.0301) = $51,505

Receivables denominated in Hong Kong dollars (200,000*$0.1284) = $25,680

Total Accounts Payables = $ 184,185

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