A. On November 12, Kera, Inc., a U.S. Company, sold merchandise on credit to Kak

Question

A. On November 12, Kera, Inc., a U.S. Company, sold merchandise on credit to Kakura Company of Japan at a price of 1,500,000 yen. The exchange rate was $0.00837 on the date of the sale.

B. On December 31, when Kera prepared its financial statements, the exchange rate was $0.00843. Complete the appropriate adjusting entry.

C. Kakura Company paid in full on January 12, when the exchange rate was $0.00861. On January 12, Kera should prepare the following journal entry:

Required: Complete the appropriate entries that would be made for each of the transactions listed in A, B, & C.  

Explanation / Answer

Solution:

Journal Entries

Transaction

Date

Account Titles and Explanation

Debit

Credit

A)

Nov.12

Accounts Receivable (1,500,000*0.00837)

$12,555

Sales Revenue

$12,555

(Sales recorded)

B)

Dec.31

Accounts Receivable

$90

   Exchange Gain (1,500,000*(0.00843 - 0.00837)

$90

(Exchange gain on Accounts Receivable recorded)

C)

Jan.12

Cash (1,500,000*0.00861)

$12,915

Accounts Receivable (12555 + 90)

$12,645

Exchange Gain (12915 - 12645)

$270

(Amount received from Kakura Company and Exchange gain recorded)

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Transaction

Date

Account Titles and Explanation

Debit

Credit

A)

Nov.12

Accounts Receivable (1,500,000*0.00837)

$12,555

Sales Revenue

$12,555

(Sales recorded)

B)

Dec.31

Accounts Receivable

$90

   Exchange Gain (1,500,000*(0.00843 - 0.00837)

$90

(Exchange gain on Accounts Receivable recorded)

C)

Jan.12

Cash (1,500,000*0.00861)

$12,915

Accounts Receivable (12555 + 90)

$12,645

Exchange Gain (12915 - 12645)

$270

(Amount received from Kakura Company and Exchange gain recorded)

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