Question

On November 1, 2014, the Yankee Corporation, a U.S. corporation, purchased and received an extruding machine from Wales Corporation, a UK company. The purchase price was $10,000 (U.S. dollars) and Yankee agreed to pay in pounds on February 1, 2015. Both corporations are on a calendar year accounting period. Assume that the spot rates for the British pound on November 1, 2014, December 31, 2014, and February 1, 2015, are $1.60, $1.62, and $1.66, respectively.

Required:

Record the November 1, December 31, and February 1 transactions in the General Journals of Yankee Corporation and Wales Corporation. If no entry is required on a particular date, indicate "No entry" in the General Journal.

Answer 1

GENERAL JOURNALS OF YANKEE CORPORATION
Date	General Journal	Debit	Credit
01-11-2014	Machinery	10,000.00
	Accounts Payable		10,000.00
31-12-2014	Exchange loss	125.00
	Accounts Payable		125.00
01-02-2015	Exchange loss	250.00
	Accounts Payable		250.00
01-02-2015	Accounts Payable	10,375.00
	Cash		10,375.00

Working Note

Exchange loss as on 31/12/2014 = 10,000/1.6 x 1.62 = 10,125

Exchange loss as on 31/12/2014 = 10,125 - 10,000 = 125

Exchange loss as on 01/02/2015 = 10,000/1.6 x 1.66 = 10,375

Exchange loss as on 01/02/2015 = 10,375 - 10,125 = 250

GENERAL JOURNALS OF WALES CORPORATION
Date	General Journal	Debit	Credit
01-11-2014	Accounts Receivable	6,250.00
	Sales Revenue		6,250.00
31-12-2014	No entry Required
01-02-2015	Cash	6,250.00
	Accounts Receivable		6,250.00