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.

Robert · 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...

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