Question

On July 1, 2019, Alpha Company purchased inventory from its Japanese supply source. Terms of sale were 100,000 yen, due 30 days from the date of purchase.  On July 30, 2019, Alpha paid for the supplies purchased on July 1. The exchange rate for the yen was $0.01 on the date of purchase, and $0.0098 on the date of payment. Use this information to prepare Alpha Company's general journal entries to record the purchase and payment for inventory purchased from its Japanese vendor.

Answer 1

Date	Particulars	Debit	Credit
01-Jul-19	Inventory	$1,000
	Accounts payable		$1,000
30-Jul-19	Accounts payable	$1,000
	Cash		$980
	Gain		$20

The journal entries shall be as follows:

1. Inventory Dr. $1000

Accounts payable. Cr. $1000

Explanation:

Since, Alpha company has purchased inventory which is an asset from its Japanese supply source. The inventory has increased and therefore, should be debited. But, since the payment for that inventory was not made immediately, it shall be recorded at that point of time as a liability. Now, since, the amount is given in yen we need to convert the same into dollars at the exchange rate prevailing at the time of purchase. Since, 1 yen = $ 0.01, therefore, 100,000 yen = 100,000 x $0.01 = $1000

2. Accounts payable. Dr $1000

Cash Cr. $980

Gain. Cr. $20

Explanation:

On the date of payment since the liability created on july 1 is now written off we need to debit the account now. Since it is paid for in cash, the cash balance reduces and should be credited. Also, the payment is made at the exchange rate prevailing on the date of payment which is 1 yen = $0.0098, so the payment required to be made is yen 100,000 x $0.0098 = $980. Which provides a gain of $1000 - $980 = $20 to alpha. Therefore, it should be shown separately to balance the entry.