Use the following information for questions 13 and 14: On October 1, 2014, Patto

Question

Use the following information for questions 13 and 14: On October 1, 2014, Patton Corporation parchased merchandise from a German supplier at a price of Euro 240,000 and issued a 7-month, 8% note denominated in Euro to the supplier. The note was payable on April 2015. The bank exchange rates were shown below 10-1-2014 12-31-2014 4-30-2015 Spot rate Euro I- USSI.45 Euro 1 USS 1.39 Euro 1USS1.43 13. How much total foreign currency transaction gain or loss should Patton report on its 2015 incom statement? a. Loss of $14,400 b. Loss of $9,792 c. Loss of $9,856 d. Gain of $14,688 4. The journal entries for Patton on April 30, 2015 would include a. a credit of $359,216 to Cash b. a credit of $350,064 to Cash c. a debit of $8,896 to Interest Expense d. a debit of $16,016 to Interest Expense

Explanation / Answer

Solution:

Purchase value of Merchandise = Euro 240,000

Interest to be booked on 31.12.2014 = Euro 240,000*8%*3/12 = Euro 4,800 = 4800*1.39 = $6,672

Net liability in Euro on 31.12.2014 = Euro 240,000 + Euro 4,800 = Euro 244,800

Net liability in US$ on 31.12.2014 = Euro 244,800 * 1.39 = $340,272

Foreign currency transaction gain to be reported in 2014 = 240000 * 0.06 = $14,400

Interest to be booked on 30.04.2015 = Euro 240000*8%*4/12 = Euro 6,400 = 6,400*1.43 = $9,152

Net payment on 30.04.2015 = Euro 244,800 + Euro 6,400 = Euro 251,200 = 251,200 * 1.43 = $359,216

Foreign Currency Transaction loss to be reported in 2015 = $359216 - $340,272 - $9,152 = $9,792

Journal entry on 30.04.2015:

Notes payable Dr                                             $340,272

Interest Expense Dr                                        $9,152

Foreign Currency Transaction Loss Dr $9,792

                To Cash                Cr                                                                           $359,216

From above calculation:

13. Foreign currency transaction loss of $9,792 to be recognized in 2015

14. Journal entry for Patton would include a credit of $359,216 to Cash on April’30 2015

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.