Question

Chocolate De-lites imports and exports chocolate delicacies. Some transactions are denominated in U.S. dollars and others in foreign currencies. A summary of accounts receivable and accounts payable on December 31, 20X6, before adjustments for the effects of changes in exchange rates during 20X6, follows:

Accounts receivable:
In U.S. dollars		$	164,000
In 475,000 Egyptian pounds (E£)		$	73,600
Accounts payable:
In U.S. dollars		$	86,000
In 21,000,000 yen (¥)		$	175,300

The spot rates on December 31, 20X6, were

E£1 = $0.176

¥1 = $0.0081

The average exchange rates during the collection and payment period in 20X7 are

E£1 = $0.18

¥1 = $0.0078

Record the purchase of Japanese yen at the $0.0078 spot rate to settle the account for December 31, 20X7.

Answer 1

A. Preparing the adjustment entries on December 31,2016
Accounts Receivable (E£)	10000		(475000*0.176) - 73600
Foreign Currency transaction Gain		10000
Accounts Payable (¥)	5200		175300 -(21000000*0.0081)
Foreign Currency transaction Gain		5200
B. Record the collection of the accounts receivable in 2017
Accounts Receivable (E£)	1900		(475000*0.18)-(475000*0.176)
Foreign Currency transaction Gain		1900
Cash	164000
Foreign Currency Units (E£)	85500
Accounts Receivable (E£)		85500
Accounts Receivable ($)		164000
C. Record the payment of the accounts payable in 2017
Accounts Payable (¥)	-6300		(21000000*0.0078)-(21000000*0.0081)
Foreign Currency Transaction Gain		-6300
Accounts Payable ($)	86000
Accounts Payable (¥)	163800
Foreign Currency Units (¥)		163800
Cash		86000

For Purchase of Japanese Yen (¥) and also for receipt of Egyptian Pound to be converted to dollar (E£) the following entry would be there

Cash ($)	85500		(475000 * 0.18)
Foreign Currency Units (E£)		85500
(For conversion of egyptian pound received)
Foreign Currency Units (¥)	163800		(21000000*0.0078)
Cash ($)		163800
(Conversion for payment to be done in Japanese Yen)