Question

2. A U.S. company, with an accounting year end of December 31, engages in the transactions indicated below. The company’s inventory allocation method is FIFO and they use the perpetual inventory system. prepare the entries to recognize the above transactions

1. On May 20, when the exchange rate was $1.40/£, a U.S. company purchased merchandise from a U.K. supplier for £10,000.
2. On June 5 the U.S. company acquired the required amount of U.K. £s and paid for the merchandise when the exchange rate was $1.38/£.
3. On August 15, when the exchange rate was $1.23/€, the U.S. company sold the merchandise purchased from the U.K. supplier to a customer in Belgium at an invoice price of €16,000.
4. On September 6, when the exchange rate was $1.21/€, the U.S. company received payment of €16,000 from the Belgian customer

Answer 1

Sr.No.	Date	Account Titles & Explanation	Debit	Credit	Remarks
a.)	20-May	Inventory	$ 14,000		(£10,000 * $1.4)
		U.K. Supplier		$ 14,000	(£10,000 * $1.4)
		(To record purchases on credit)
b.)	05-Jun	U.K. Supplier	$ 14,000		(£10,000 * $1.4)
		Bank		$ 13,800	(£10,000 * $1.38)
		Gain due to Foreign Exchange Fluctuations		$      200	(£10,000 * $0.02)
		(To record payment to UK Supplier)
c.)	15-Aug	Belgium Customer	$ 19,680		(€16,000 * $1.23)
		Sales Revenue		$ 19,680	(€16,000 * $1.23)
		(To record sales on credit.)
		Cost of Goods Sold	$ 14,000		(From a. part)
		Inventory		$ 14,000	(From a. part)
		(To update stock on FIFO basis.)
d.)	06-Sep	Bank	$ 19,360		(€16,000 * $1.21)
		Loss Due to Foreign Exchange Fluctuations	$      320		(€16,000 * $0.02)
		Belgium Customer		$ 19,680	(€16,000 * $1.23)
		(To record receipt of money from customer.)

Note:- The above answer is based on GAAP which may vary from country to country. In absence of chart of accounts, the most appropriate account titles have been used which may vary from the answer.

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