Question

On August 1, Steffen Computers, Inc. purchased thirty computer chips on account from a company located in Taiwan for 520,000 Taiwan dollars. On that date the Taiwan dollar is worth $0.034 On September 1, when the Taiwan dollar was worth $0.036, payment was made. The journal entry on September 1 by Steffen Computers Inc. would include a: (Round your final answer to the nearest dollar) (A) credit to Cash$17, 680. (B) debit to Accounts Payable $18, 720. (C) debit to Foreign-Currency Transaction Loss-$1040. (D) credit to Foreign-Currency Transaction Gain-$1040.

Answer 1

Answer:

(C) debit to Foreign-Currency Transaction Loss-$1040

Explanation:

Foreign currency related Financial assets and financial liabilities are usually revalued with any difference as a result of the exchange rates posted as a gain or loss in the income statement.

On transaction date, cost of assets

= 520000 * $0.034

On payment date, the amount paid

= 520000 * $0.036

The amount paid is higher than the liability recorded before hence the difference is recognized as a loss on foreign exchange.

= 520000 * $0.036 - 520000 * $0.034

= $1040