Question

During 2015, ABC Company, headquartered in Washington D.C., enters into transactions with companies in a foreign country, where the currency used to settle the transactionis is a foreign currency unit (FCU). Prepare journal entries to record the following transactions in USD, including any necessary adjusting entries at December 31 caused by the fluctuation in the value of the FCU. Assume the company uses a perpetual inventory system. Exchange rates are listed below.

Jan. 31, 2015	Purchased equipment for 100,000 FCU on credit
Mar. 31	Paid for the equipment purchased on Jan. 31
Mar. 31	Purchased inventory for 50,000 FCU on credit
May. 31	Sold all of the inventory purchased on Mar. 31 for 80,000 FCU on account.
Aug. 31	Collected all 80,000 FCU from the sale on May 31
Sep. 30	Made a partial payment on the inventory purchased on Mar. 31 of 40,000 FCU
Nov. 30	Sold services to a customer for 25,000 FCU on account.
Jan. 31, 2016	Paid the remaining balance for the inventory purchased on Mar. 31

Exchange Rates for 1 FCU:

Jan. 31, 2015	0.60
March 31	0.58
May 31	0.57
August 31	0.55
September 30	0.55
November 30	0.55
December 31	0.52
Jan. 31, 2016	0.51

Answer 1

Solution:

Journal Entries - ABC Company
Date	Particulars	Debit	Credit
31-Jan-15	Equipment A/c Dr (100000*0.60)	$60,000.00
	To Accounts Payable		$60,000.00
	(Being equipment purchased for 100000 FCU on credit)
31-Mar-15	Accounts Payable A/c Dr	$60,000.00
	To Cash (100000*0.58)		$58,000.00
	To Foreign currency exchange gain		$2,000.00
	(Being payment made to equipment supplier)
31-Mar-15	Inventories A/c Dr (50000*0.58)	$29,000.00
	To Accounts Payable		$29,000.00
	(Being inventory purchased on credit)
31-May-15	Accounts receivables Dr (80000*0.57)	$45,600.00
	To Sales		$45,600.00
	(Being inventory sold on account)
31-Aug-15	Cash A/c Dr (80000*0.55)	$44,000.00
	Foreign currency exchange loss Dr	$1,600.00
	To Accounts receivables		$45,600.00
	(Being amount collected from receivables)
30-Sep-15	Accounts payable Dr (40000*0.58)	$23,200.00
	To Cash (40000*0.55)		$22,000.00
	To Foreign currency exchange gain		$1,200.00
	(Being payment made to supplier)
30-Nov-15	Accounts receivables Dr (25000*0.55)	$13,750.00
	To Service Revenue		$13,750.00
	(Being Services sold to customer)
31-Dec-15	Foreign currency exchange loss Dr (25000*0.03)	$750.00
	To Accounts receivables		$750.00
	(Being receivales recorded at fair value considering fluctuating currency rates)
31-Dec-15	Accounts payable Dr (10000*0.06)	$600.00
	To Foreign currency exchange gain		$600.00
	(Being accounts payable recorded at fair value considering fluctuating currency rates)
31-Jan-16	Accounts payable Dr (10000*0.52)	$5,200.00
	To Cash (10000*0.51)		$5,100.00
	To Foreign currency exchange gain		$100.00
	(Being payment made to supplier)