Question

Angela’s Artwork Inc. (Angela’s) recently entered into a contract to supply artwork to a U.S. company. The controller of Angela’s is not experienced with translation of foreign currency transactions and has made the following entries to record sales to the U.S. company without factoring in the impact of foreign currency on the transactions:

To record sales in USD:

DR		Accounts receivable	$156,000
	CR	Sales		$156,000

To record the collection of a portion of the receivable:

DR		Cash (USD)	$90,000
	CR	Accounts receivable		$90,000

To record the conversion of a portion of USD cash to CDN cash:

DR		Cash (CDN)	$78,000
	CR	Sales		$18,000
	CR	Cash (USD)		$60,000

Sales were made evenly over a period when the exchange rate was US$1.00 = C$1.33, and the exchange rate at the end of the fiscal year was US$1.00 = C$1.25.

What is the correct adjustment to accounts receivable?

Question 1 options:

a)	$39,000 debit to accounts receivable

b)	$16,500 debit to accounts receivable

c)	$16,500 credit to accounts receivable

d)

$39,000 credit to accounts receivable

Angela’s Artwork Inc. (Angela’s) recently entered into a contract to supply artwork to a U.S. company. The controller of Angela’s is not experienced with translation of foreign currency transactions and has made the following entries to record sales to the U.S. company without factoring in the impact of foreign currency on the transactions:

To record sales in USD:

DR		Accounts receivable	$156,000
	CR	Sales		$156,000

To record the collection of a portion of the receivable:

DR		Cash (USD)	$90,000
	CR	Accounts receivable		$90,000

To record the conversion of a portion of USD cash to CDN cash:

DR		Cash (CDN)	$78,000
	CR	Sales		$18,000
	CR	Cash (USD)		$60,000

Sales were made evenly over a period when the exchange rate was US$1.00 = C$1.33, and the exchange rate at the end of the fiscal year was US$1.00 = C$1.25.

What is the correct adjustment to accounts receivable?

Question 1 options:

a)	$39,000 debit to accounts receivable

b)	$16,500 debit to accounts receivable

c)	$16,500 credit to accounts receivable

d)	$39,000 credit to accounts receivable

Answer 1

Angelia Artwork Inc.

we have to calculate adjustment amount to Account receivable at the year end due to change in foreign exchange

Company is recorded Account receivables at USD 156000 in its books at the time of transaction so A/ R is $156000 Now

Further company received or collected USD 90000 out of outstanding Account Receivables of USD 156000 So after this collection of Account Receivable the remaining outstanding amount of Account Receivable is USD 66000 (156000 - 90000)

at the year we have to convert the USD 66000 to CDN at the rate of 1.25 CDN per USD that will translate the USD 66000 to CDN 82500 (1.25 x 66000)

So 82500 - 66000 = 16500 of Account Receivable will be increased in account receivable to record them in CDN , So $16500 will be debited to Account receivable to increase value.

So option (b) is the correct answer.