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.

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Answer #1

Answer:

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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