Question

Harris Inc. had the following transactions:

1. On May 1, Harris purchased parts from a Japanese company for a U.S. dollar equivalent value of $8,400 to be paid on June 20. The exchange rates were
May 1 1 yen = $ 0.0070
June 20 1 yen = 0.0075

2. On July 1, Harris sold products to a Brazilian customer for a U.S. dollar equivalent of $10,000, to be received on August 10. Brazil’s local currency unit is the real. The exchange rates were
July 1 1 real = $ 0.20
August 10 1 real = 0.22

Required:
a. Assume that the two transactions are denominated in U.S. dollars. Prepare the entries required for the dates of the transactions and their settlement in U.S. dollars. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the foreign purchase denominated in U.S. Dollars.

2

Record the settlement of the payables.

3

Record the foreign sale dominated in U.S. dollars.

4

Record the collection of the receivable.

b. Assume that the two transactions are denominated in the applicable local currency units of the foreign entities. Prepare the entries required for the dates of the transactions and their settlement in the local currency units of the Japanese company (yen) and the Brazilian customer (real). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Record the foreign purchase denominated in Japanese yen.

2

Record the revaluation of the foreign currency payable to the U.S. dollar equivalent value.

3

Record the purchase of Japanese yen to settle the account payable at the June 20 spot rate.

4

Record the settlement of the payable denominated in Japanese yen.

5

Record the foreign sales denominated in Brazilian reals.

6

Record the revaluation of foreign currency payable to the U.S. dollar equivalent value.

7

Record the receipt of Brazilian reals in the settlement of the receivables.

Answer 1

The student's question concerns accounting for international transactions in U.S. dollars and foreign currencies, involving exchange rate evaluation and possible exchange gains or losses based on rate fluctuations.

Step-by-step explanation:

The student's question relates to the accounting entries required for international transactions denominated in both U.S. dollars and foreign currencies. When transactions are settled in U.S. dollars, no exchange gain or loss is recorded. However, if the transactions are denominated in a foreign currency, exchange gains or losses may occur due to changes in the exchange rates between the transaction date and the settlement date.

Denominated in U.S. Dollars:

1. No journal entry required for foreign purchase as it is already in U.S. dollars.
2. No journal entry required for the settlement of payables.
3. No journal entry required for the foreign sale as it is already in U.S. dollars.
4. No journal entry required for the collection of receivables.

Denominated in Local Currencies:

1. Record the foreign purchase in yen based on the exchange rate on May 1.
2. Record revaluation if any, due to exchange rate changes on June 20.
3. Record purchase of yen on June 20 for settlement.
4. Record settlement of the payable in yen.
5. Record the foreign sale in reals.
6. Record revaluation if any, due to exchange rate changes on August 10.
7. Record receipt of reals in settlement of the receivable.

Answer 2

The question is about preparing journal entries for Harris Inc’s transactions in both U.S. dollars and foreign currencies (Japanese yen and Brazilian reals), taking into account exchange rate fluctuations which affect the company's financial statements.

Step-by-step explanation:

Journal Entries for U.S. Dollar and Local Currency Transactions

The student is asked to prepare journal entries for two transactions: a purchase from a Japanese company in yen and a sale to a Brazilian customer in reals, both from the perspective of the transactions being denominated in U.S. dollars and in the local currencies. When transactions are denominated in U.S. dollars, there are no foreign exchange gains or losses. However, when transactions are in foreign currencies, the company must revalue the foreign currency payables or receivables based on the prevailing exchange rates at the dates of the transaction and settlement.

For example, a purchase made in yen on May 1 at an exchange rate of 1 yen = $0.0070, if later settled on June 20 when the exchange rate is 1 yen = $0.0075, would result in a foreign exchange loss due to the yen having appreciated relative to the U.S. dollar. A similar situation occurs with sales in reals when the exchange rate changes unfavorably from the date of sale to the date of receipts collection.

Accounting for these transactions in a business includes recording the initial purchase or sale, revaluation of the foreign currency amounts, and then recording the settlement. These entries impact the company’s financial statements, including the income statement and balance sheet. Exchange rate fluctuations can significantly affect the profits, losses, and reported financial position of a business involved in international trade.