Question

Wolfe Computer is a U.S. company that manufactures portable personal computers. Many of the components for the computer are purchased abroad, and the finished product is sold in foreign countries as well as in the United States. Among the recent transactions of Wolfe are the following: Oct. 28 Purchased from Mitsutonka, a Japanese company, 20,000 disk drives. The purchase price was ¥184,000,000, payable in 30 days. Current exchange rate, $0.0105 per yen. (Wolfe uses the perpetual inventory method; debit the Inventory of Raw Materials account. ) Nov. 9 Sold 700 personal computers to the Bank of England for £572,727 due in 30 days. The cost of the computers, to be debited to the cost of Goods Sold account, was $518,000. Current exchange rate, $1.65 per British pound. (Use one compound journal entry to record the sale and the cost of goods sold. In recording the cost of goods sold, credit Inventory of Finished Goods.) Nov.27 Issued a check to Inland Bank for $1,836,000 in full payment of account payable to Mitsutonka. Dec. 2 Purchased 10,000 gray-scale monitors from German Optical for €1,140,000, payable in 60 days. Current exchange rate, $0.7030 per euro. (Debit Inventory of Raw Materials.) Dec. 9 Collected dollar-equivalent of £572,727 from the Bank of England. Current exchange rate, $1.63 per British pound. Dec.11 Sold 10,000 personal computers to Computique, a Swiss retail chain, for SFr22,500,000, due in 30 days. Current exchange rate, $0.6000 per Swiss franc. The cost of the computers, to be debited to cost of Goods Sold and credited to Inventory of Finished Goods, is $7,400,000. Required: a. Prepare in general journal form the entries necessary to record the preceding transactions. b. Prepare the adjusting entries needed at December 31 for the €1,140,000 account payable to German Optical and the SFr22,500,000 account receivable from Computique. Year-end exchange rates, $0.7000 per euro and $0.5980 per Swiss franc. (Use a separate journal entry to adjust each account balance.) c. Compute the unit sales price of computers in U.S. dollars in either the November 9 or December 11 sales transaction. (The sales price is the same in each transaction.) d. Compute the exchange rate for the yen, stated in U.S. dollars, on November 27.

Answer 1

The following are the books of Wolfe Computer

(a) Going through the Question clearly states about the Cost of Goods Sold a/c, which is a clear que that the entity follows Integral System of Cost Accounting, which involves recording both Cost and Finacial Transactions in the same set of records, instead of following different books for each record.

Date	Particulars	LF no.	Debit	Credit
October 28	Inventory of raw materials a/cDr To MItsutonka a/c (Being goods purchased from Japan @$0.0105 per yen,184000000yen*$0.0105=$1932000)		$1932000	$1932000
November 9	Cost of Goods Sold a/cDr Bank of England a/cDr To Sales a/c To Inventory of Finished Goods (Being Inventory sold transferred to Cost of Goods Sold Account and sales recorded,572727pounds*$1.65=$944999.55)		$518000 $944999.55	$944999.55 $518000
November 27	Mitsutonka a/cDr To Bank a/c To Exchange Difference a/c (Being account settled)		$1932000	$1836000 $96000
December 2	Inventory of Raw materials a/cDr To German Optical a/c (Being raw material Purchased on Credit,1140000euros*$0.7030)		$801420	$801420
December 9	Bank a/c Dr Exchange Difference a/c Dr To Bank of England a/c (Being account settled by Debtor)		$933545.01 $11454.54	$944999.55
December 11	Cost of Goods Sold a/c Dr Computiquea/c Dr To sales a/c To Inventory of Finished Goods a/c (Being Inventory transferred to Cost of Goods Account,Sales were recorded alongside)		$7400000 $13500000	$13500000 $7400000

In the Integral system of Accounting, Inventory as and when sold will be transferred to Cost of Goods Sold, so that the Cost of sales corresponds to cost of all the units sold .

(b) The following would be the Adjustment entries in the books of Wolfe Computer for December 31

Date

Particulars

LF no.

Debit

Credit

December 31	German Optical a/c Dr To Exchange Difference a/c (Being Exchange Difference taken care of,$801420-$798000=$3420)		$3420	$3420
December 31	Exchange Difference a/c Dr To Computique a/c (Being Exchange Difference taken care of ,$13500000-$13455000=$45000)		$45000	$45000

(c) Sales Unit Price for Dec 11 Transaction

Total Sales Value = $13500000 for 20000 units

Sales Price per unit = $13500000/20000 = $1350

(d) The Value of Yen on November 27

Let 'A' be value of Yen on November 27

On October 28 , when i yen = $0.0105, Total Payable = $1932000

By Cross Multiplication,

$0.0105__________________ $1932000

A __________________ $1836000

So, A=1 yen=$0.00997