Question

A U.S. company purchased inventory on account at a cost of 1,000 foreign currency units (FCU) from a non‐U.S. company on November 15, to be paid on December 15. The FCU is valued at $0.85 on November 15 and at $0.90 on December 15. The journal entry to record payment on December 15 should include which of the following?A. Debit inventory and credit cash for $850.B. Debit accounts payable and credit exchange gains and losses for $50.C. Debit accounts payable and credit cash for $850.D. Debit exchange gains and losses and credit accounts payable for $50.

Answer 1

D. Debit exchange gains and losses and credit accounts payable for $50.

Step-by-step explanation:

0.85 FCU = 1 dollar

1,000 x 0.85 = 850

0.90 FCU = 1 dollar

1,000 x .90 = 900

exchange 850 -900 = -50 = loss 50

november 15

inventory 850

account payable 850

december 15

exchange gans and losses 50 debit

account payable 50 credit

december 15

account payable 900 debit

cash 900 credit