Fry Ltd a UK-based Company- the Sterling Pound is its functional currency- had the following foreign currency transactions with an American company in the year to 31/12/2009 15/11 Purchased Merchandise Inventory for $40,000 on account from Texas Inc. 15/11 Sold merchandise Inventory for $60,000 on account to Alamos Inc- ignore cost of goods sold 20/11 Pays Texas Inc $30,000 for the merchandise inventory purchased 20/11 Receives $30,000 on account from Alamos. 20/11 Purchased a PPE for $100,000 from Chicago on credit. 20/11 Borrows $90,000 from an American bank 21/12 Pays Chicago Inc $80,000 for the machinery The exchange rates at the relevant dates were: 15/11 1$= 0.3846 Sterling Pound 20/11 1$ 0.4167 Sterling Pound 21/12 1$ 0.4348 Sterling Pound 31/12 1$=0.4762 Sterling Pound The PPE purchased on 20 November 2009 is carried at historical cost in the company's statement of financial position at 31 December 2009. The cost of the company's inventory at that date does not exceed its nets realisable value Required: 1- Record the above transactions in the books of Fry 2- Calculate the exchange difference for the year to 31 December 2009 and explain how this difference should be dealt with in the company's financial statements? 3- What is the journal entry if Fry pays Chicago the remaining $20,000 after the reporting date on 4 January 2010. The exchange rate at 4/1/2010 was 1$= 0.4800 Sterling Pound
Fry Ltd a UK-based Company- the Sterling Pound is its functional currency- had the following foreign currency transactions with an American company in the year to 31/12/2009 15/11 Purchased Merchandise Inventory for $40,000 on account from Texas Inc. 15/11 Sold merchandise Inventory for $60,000 on account to Alamos Inc- ignore cost of goods sold 20/11 Pays Texas Inc $30,000 for the merchandise inventory purchased 20/11 Receives $30,000 on account from Alamos. 20/11 Purchased a PPE for $100,000 from Chicago on credit. 20/11 Borrows $90,000 from an American bank 21/12 Pays Chicago Inc $80,000 for the machinery The exchange rates at the relevant dates were: 15/11 1$= 0.3846 Sterling Pound 20/11 1$ 0.4167 Sterling Pound 21/12 1$ 0.4348 Sterling Pound 31/12 1$=0.4762 Sterling Pound The PPE purchased on 20 November 2009 is carried at historical cost in the company's statement of financial position at 31 December 2009. The cost of the company's inventory at that date does not exceed its nets realisable value Required: 1- Record the above transactions in the books of Fry 2- Calculate the exchange difference for the year to 31 December 2009 and explain how this difference should be dealt with in the company's financial statements? 3- What is the journal entry if Fry pays Chicago the remaining $20,000 after the reporting date on 4 January 2010. The exchange rate at 4/1/2010 was 1$= 0.4800 Sterling Pound
Chapter25: Taxation Of International Transact Ions
Section: Chapter Questions
Problem 20P
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Transcribed Image Text:Fry Ltd a UK-based Company- the Sterling Pound is its functional currency- had the following
foreign currency transactions with an American company in the year to 31/12/2009
15/11 Purchased Merchandise Inventory for $40,000 on account from Texas Inc.
15/11 Sold merchandise Inventory for $60,000 on account to Alamos Inc- ignore cost of goods
sold
20/11 Pays Texas Inc $30,000 for the merchandise inventory purchased
20/11 Receives $30,000 on account from Alamos.
20/11 Purchased a PPE for $100,000 from Chicago on credit.
20/11 Borrows $90,000 from an American bank
21/12 Pays Chicago Inc $80,000 for the machinery
The exchange rates at the relevant dates were:
15/11 1$= 0.3846 Sterling Pound
20/11 1$ 0.4167 Sterling Pound
21/12 1$ 0.4348 Sterling Pound
31/12 1$=0.4762 Sterling Pound
The PPE purchased on 20 November 2009 is carried at historical cost in the company's statement of
financial position at 31 December 2009. The cost of the company's inventory at that date does not
exceed its nets realisable value
Required:
1- Record the above transactions in the books of Fry
2- Calculate the exchange difference for the year to 31 December 2009 and explain how this
difference should be dealt with in the company's financial statements?
3- What is the journal entry if Fry pays Chicago the remaining $20,000 after the reporting date
on 4 January 2010. The exchange rate at 4/1/2010 was 1$= 0.4800 Sterling Pound
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