Problem

Assume that on November 01,2021 a PH Company ordered 1,200 units of inventory from a US
Company for $24,000. The inventory was shipped and invoiced to the Philippine Company on
December 01, 2021 which needed to be paid on March 01, 2022. The firm’s fiscal year end is
December 31. Assume further that the Philippine firm did not engage in any form of hedging
activity. The spot rates for US Dollars at various times are as follows:

Buying Spot Rates Selling Spot Rates

November 01, 2021 P 39.80 P40.25

December 01, 2021 40.00 40.55

December 31, 2021 40.70 40.80

March 01, 2022 40.60 40.65

Required:
1. Prepare all entries of the PH Company to record the above transactions.
Answer:

December 1, 2021- Transaction date

Purchases 973,200
Accounts Payable (24,000 x 40,55) 973,200

December 31,2021- Balance sheet date

Foreign currency transactions loss 6,000
Accounts Payable (24,000 x (40.80-40.55) 6,000

March 1,2021- Settlement date

Accounts Payable 979,200
Foreign currency transactions gain
(24,000 x (40.80 - 40.65) 3,600
Cash (24,000 x 40.65) 975,600
2. Determine the following:
a. Foreign Exchange gain or loss on:
1. December 01- None, because this is the transaction date.
2. December 31- 6,000 is the loss on this transaction
3. March 01- 3,600 is the gain on this transaction
b. On December 31:
1. Accounts Payable Balance- 979,200 the spot rate on the balance sheet
date or current rate on the balance sheet
2. Inventory Balance- 973,200 is the spot rate on the transaction date or
historical rate on the balance sheet date.