On January 1, ABC Corporation, a
U.S. based manufacturer, buys 10 million yen worth of inventory...

Question

On January 1, ABC Corporation, a
U.S. based manufacturer, buys 10 million yen worth of inventory from SA
Corporation, a Japanese-based firm.The
purchase is made on credit and the balance is to be paid in 3 months. The U.S. dollar/Japanese yen exchange rate was
$1.00 = 125 yen on January 1, and $1.00 = 120 yen on April 1.

Prepare dated journal entries for
ABC Corporation in U.S. dollars for the incurrence and settlement of this
foreign currency transaction.ABC Corporation
employs a two-transaction perspective.

David · Accepted Answer

On January 1, ABC Corporation, a U.S. based manufacturer, buys 10 million yen worth 
of inventory from SA Corporation, a Japanese-based firm. The purchase is made on 
credit and the balance is to be paid in 3 months.  The U.S. dollar/Japanese yen 
exchange rate was $1.00 = 125 yen on January 1, and $1.00 = 120 yen on April 1. 
Prepare dated journal entries for ABC Corporation in U.S. dollars for the incurrence 
and settlement of this foreign currency transaction. ABC Corporation employs a two-
transaction perspective.
Solution: 
Under the two-transaction perspective, an import purchase (or an export sale) and the 
subsequent payment (or collection) of cash are treated as two separate transactions 
and is to be accounted for separately. 
For a two-transaction perspective,

On January 1, ABC Corporation, a U.S. based manufacturer, buys 10 million yen worth of inventory from SA Corporation, a Japanese-based firm.The purchase is made on credit and the balance is to be paid...

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