Question

On April 1, Year 1, CEDN acquired inventory from USA, an American based supplier for $USD 85,000. Legal possession of this inventory was also on April 1. CEDN's fiscal year end is July 31. An agreement was reached where payment for the inventory would be made November 1, Year 1. The functional currency is the Canadian dollar, and there are no forward exchange contracts Answer the question below Flag question: Question 1 Question 15 pts Assuming the following exchange rates applied, prepare all journal entries for the Transaction date, reporting date and settlement date: Transaction date: April 1 Year 1: 1 U.S. Dollar = CDN$1.39 Year end: July 31 Year 1: 1 U.S. Dollar = CDN$1.455 Settlement date: November 1 Year 1: 1 U.S. Dollar = CDN$1.425

Answer 1

Here are all the journal entries for the transaction date, reporting date, and settlement date:

The Journal Entries

Transaction Date

Inventory CDN$118,149.99

Accounts Payable 0

To record the purchase of inventory from USA on April 1, Year 1.

The exchange rate on April 1 is CDN$1.39 per USD.

Reporting Date

Exchange Gain CDN$2,492.50

Inventory 0

To record the unrealized exchange gain on the inventory purchase as of July 31, Year 1.

The exchange rate on July 31 is CDN$1.455 per USD.

Settlement Date

Accounts Payable CDN$121,125.00

Exchange Loss CDN$2,607.50

Inventory 0

To record the payment for the inventory purchase on November 1, Year 1.

The exchange rate on November 1 is CDN$1.425 per USD.

These journal entries will ensure that the inventory is recorded at its fair value in Canadian dollars at each reporting date and that the exchange gains and losses are recognized appropriately.