Question

# On November 12, Higgins, Inc., a U.S. Company, sold merchandise on credit to Kagome of Japan...

On November 12, Higgins, Inc., a U.S. Company, sold merchandise on credit to Kagome of Japan at a price of 1,690,000 yen. The exchange rate was \$.00856 per yen on the date of sale. On December 31, when Higgins prepared its financial statements, the exchange rate was \$.00862. Kagome paid in full on January 12, when the exchange rate was \$.00880. On December 31, Higgins should prepare the following journal entry:

Multiple Choice

• Debit Sales \$101; credit Foreign Exchange Gain \$101.

• Debit Foreign Exchange Loss \$101; credit Sales \$101.

• Debit Accounts Receivable-Kagome \$101; credit Foreign Exchange Gain \$101.

• Debit Foreign Exchange Loss \$101; Accounts Receivable-Kagome \$101.

• No journal entry is required until the amount is collected.

Correct option is , Debit Account receivable - Kagome \$101 ; Credit foreign exchange gain \$101.

Explanation:

Sale price = \$1690000

Exchange Rate at the time of sale = \$0.00856

Exchange Rate as on December 31 = \$0.00862

Increase in exchange Rate = \$0.00862 - \$0.00856 = \$0.0006

Foreign exchange gain will be recorded as on December 31 = 1690000 x \$0.0006 = \$101.4 i.e. \$101

Journal entry:

Account Receivable Account...... Debit \$101

Foreign exchange gain Account .... Credit \$101

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