Question

Purchased various inventory items on account from Toniwau, a Japanese company. The price was 600,000 yen, and the exchange rate of the yen was $0.0089. Paid Toniwau when the exchange rate was $0.0076 Sold merchandise on account to Le Fleur, a French company, at a price of 10,000 euros. The exchange rate was $1.15. Ignore cost of goods sold. Collected from Le Fleur when the exchange rate was $1.05 Oct 9 Nov 18 22 28

Answer 1

	Requirement 1
Date	Particulars			Journal Entries		Dr	Cr
9-Oct	Purchase A/C		(600000 yen *$0.0089)			5340
	To Toniwau Japanese Company						5340
	[being the purchase of inventory]
18-Nov	Toniwau Japanese Company					5340
	To Bank A/C(600000 yen *$0.0076)						4560
	To Foreign Currency Translation Gain						780
	[being toniwau company paid and balance transfer
	To Foreign Currency Translation Gain]
22-Nov	Le Fleur French Company A/C					11500
	To sales		(10000 euros *$1.15)				11500
	[being the merchadise sold at the exchange rate of $1.15]
28-Nov	Bank A/C	(10000 euros *$1.05)				10500
	Foreign Currency Translation -Loss					1000
	To Le Fleur French Company			(10000 euros *$1.15)			11500
	[Being collection made and loss of translation recorded]
	Requirement 2
	on Oct 9 Future Shop Purchased inventory from the japanese company when the exchange
	rate is 1 Yen =$0.0089 which means company have to pay the japenese company at a later date.
	Therefore the future shop wants to strengthen the $ because we have payables because if $
	strenthens our payables will reduce and we get the Foreign Currency Translation Gains and viceversa.
	In the given problem we can find that the $ becomes strengthen by becoming exchange rate
	1 Yen =$0.0076 and we get a foreign exchage translation gain of 780
	On Nov 23rd Future Shop made sales to the french company when the exchange rate
	was 1 Euro =$1.15 which means it has receivables.So Future Shop wants the euro to strengthen
	as if the euro strengthen then the receivables will increase and company will get the Foreign
	Currency Translation gain and viceversa.
	In the given problem since the exchange rate becomes 1 euro =$1.05 so the company gets the foreign
	currency translation loss.
	As per the requirement 2 I have explained the logic and you can get the answer to be filled up from the
	drop down as per the explanation given above .In case of any doubt please let me know.