High School

1. On March 1, Maple sold goods to a Canadian company for C$44,000, receivable on May 30. The spot rates for Canadian dollars were C$1 = $0.65 on March 1 and C$1 = $0.68 on May 30.

2. On July 1, Maple signed a contract to purchase equipment from a Japanese company for ¥470,000. The equipment was manufactured in Japan during August and was delivered to Maple on August 30, with payment due in 60 days on October 29. The spot rates for yen were ¥1 = $0.102 on July 1, ¥1 = $0.104 on August 30, and ¥1 = $0.106 on October 29. The 60-day forward exchange rate on August 30, 20X5, was ¥1 = $0.1055.

3. On November 16, Maple purchased inventory from a London company for £24,000, payable on January 15, 20X6. The spot rates for pounds were £1 = $1.65 on November 16, £1 = $1.63 on December 31, and £1 = $1.64 on January 15, 20X6. The forward rate on December 31, 20X5, for a January 15, 20X6, exchange was £1 = $1.645.

**Journal Entries:**

1) November 16, X5: Record the purchase of inventory.

2) December 31, 20X5: Record the revaluation of the foreign currency.

3) January 15, 20X6: Record the revaluation of the foreign currency.

4) January 15, 20X6: Record the receipt of the foreign currency.

5) January 15, 20X6: Record the payment of accounts payable.

Answer :

Journal entries are the recorded transactions in a company's accounting system that document the financial effects of business activities

Based on the given information, the journal entries for the transactions would be as follows:

1. Nov 16, X5: Record the purchase of inventory

Debit: Inventory (in pound sterling) £24,000

Credit: Accounts Payable (in pound sterling) £24,000

2. Dec 31, 20X5: Record the revaluation of the foreign currency

Debit: Foreign Exchange Gain/Loss (income statement account)

Credit: Accounts Payable (in U.S. dollars) $39,120

Credit: Foreign Exchange Gain/Loss (balance sheet account)

To calculate the foreign exchange gain/loss, we need to compare the exchange rate on Nov 16, X5, with the exchange rate on Dec 31, 20X5. The gain/loss is the difference between the two rates multiplied by the pound sterling amount:

Exchange Rate Difference = £24,000 x (1.63 - 1.65)

Exchange Rate Difference = £24,000 x (-0.02)

Exchange Rate Difference = -£480

Since the exchange rate decreased from Nov 16 to Dec 31, there is a foreign exchange loss. Hence, we debit the Foreign Exchange Gain/Loss account.

3. Jan 15, 20X6: Record the revaluation of the foreign currency

Debit: Foreign Exchange Gain/Loss (income statement account)

Credit: Accounts Payable (in U.S. dollars) $39,360

Credit: Foreign Exchange Gain/Loss (balance sheet account)

To calculate the foreign exchange gain/loss, we need to compare the exchange rate on Dec 31, 20X5, with the exchange rate on Jan 15, 20X6. The gain/loss is the difference between the two rates multiplied by the pound sterling amount:

Exchange Rate Difference = £24,000 x (1.64 - 1.645)

Exchange Rate Difference = £24,000 x (-0.005)

Exchange Rate Difference = -£120

4. Jan 15, 20X6: Record the receipt of the foreign currency

Debit: Cash (in U.S. dollars) $39,360

Credit: Accounts Payable (in U.S. dollars) $39,360

This entry reflects the receipt of the foreign currency from the London company, which settles the accounts payable.

5. Jan 15, 20X6: Record the payment of accounts payable

Debit: Accounts Payable (in U.S. dollars) $39,360

Credit: Cash (in U.S. dollars) $39,360

This entry reflects the payment of the accounts payable in U.S. dollars.

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