In: Accounting
BAY Co., a U.S. corporation, purchased inventory on credit from a German company on March 18, 2017 for 50,000 Euros. BAY Co. made payment of 50,000 Euros on May 17, 2017. The exchange rate was €1 = $1.27 on April 18, €1 = $1.30 on April 30; and €1 = 1.28 on May 17.
Prepare the journal entry to record the sale as of April 18?
What amount of foreign exchange gain or loss, if any, should be recorded on April 30th monthly statements from this transaction? If there is a foreign exchange gain or loss prepare the journal entry.
Prepare the Journal entry to record BAY’S payment of the payable on May 18th
What is the total CUMULATIVE gain or loss BAY Co. recognizes on this transaction?
Solution:
Journal Entries - Bay Co | |||
Date | Particulars | Debit (A$) | Credit (A$) |
18-Apr-17 | Inventories Dr (50000 * $1.27) | $63,500.00 | |
To Accounts Payable | $63,500.00 | ||
(Being purchase of inventory recorded) | |||
30-Apr-17 | Foreign currency exchange loss Dr (50000*0.03) | $1,500.00 | |
To Accounts Payable | $1,500.00 | ||
(Being Payables recorded at fair value considering fluctuating currency rates) | |||
18-May-17 | Accounts Payable Dr | $65,000.00 | |
To Cash (50000*$1.28) | $64,000.00 | ||
To Foreign currency exchange gain (50000*$0.02) | $1,000.00 | ||
(Being payment made to german company) |
Cumulative gain or (loss) Bay Co. recognizes = ($1,500) + $1,000 = ($500)