Exercises: Foreign Currency Accounting 姓名：班级：学号：成绩：
A.Answer the questions below
1.Fluctuating exchange rates cause several major issues in accounting for foreign currency translation, what are they?( or the primary problem about foreign currency translation are ?)
The Answer:
(1)Which exchange rate should be used to translate foreign currency balances
to domestic currency?
(2)Which foreign currency assets and liabilities are exposed to exchange rate
changes?
(3)How should translation gains and losses be accounted for?
B. Explain to the Concepts
direct quote
The exchange rate specifies the number of domestic currency units
needed to acquire a unit of foreign currency.
indirect quote
The exchange rate specifies the price of a unit of the domestic
currency in terms of the foreign currency.
current rate
The exchange rate in effect at the relevant financial statement date.
functional currency
The primary currency in which an entity does business and generates and spends cash. It is usually the currency of the country where the entity is located and the currency in which the books of record are maintained
historical rate
The foreign exchange rate that prevailed when a foreign currency asset or liability was first acquired or incurred.
monetary items
Obligations to pay or rights to receive a fixed number of currency units in the future.
settlement date
The date on which a payable is paid or a receivable is collected.
C. Drills of Business Transaction
1.XYZ is a U.S. company, its foreign exchange business as below：
On Dec. 1, 2008 ,XYZ company purchases a quantity of merchandise , on that day the exchange rate is UK￡0.6169=US＄1 .Assume the transaction costs is UK￡81050，payment period is 60 days.
Assume the following exchange rates :
December 31,2008 UK￡0.6150=US＄1
January 31,2009 UK￡0.6159=US＄1
Required：
Prepared double entries under Two-transaction Perspective when transaction ,statement and transaction settlement date.
1. On Dec. 1, 2008. Transaction Date
Dr. Merchandise Inventory $131382.72
Cr. Accounts Payable $131382.72
￡81050÷0.6169
2. On Dec. 31,2008. Statement Date
Dr. Foreign Exchange Loss $405.9
Cr. Accounts Payable $405.9
￡81050÷(0.6150-0.6169)
3. On Jan. 31,2009. Settlement Date
(1)Dr. Accounts Payable $192.58
Cr. Foreign Exchange Gain $192.58
￡81050÷(0.6159-0.6150)
(2)Dr. Accounts Payable $131596.04
Cr. Cash $131596.04
2.Assume that a U.S. firm imports (exports) equipment from Germany on March 1 for €200,000 when the exchange rate is $1.3112 per euro. Payment in euro does not have to be made until April 30. Assume that on March 31, the exchange rate is $1.3500 per euro and on April 30 is $1.3300 .
Required：
(1)Give the journal entries under the two-transaction perspective to the U.S. firm.
(2)Give the journal entries under the single-transaction perspective to the U.S.
firm.
Under the single-transaction perspective
a. When the firm as an importer.
1. On March 1. Transaction Date
Dr. Equipment $262,240
Cr. Accounts Payable $262,240
￡200,000x1.3112
2. On March 31. Statement Date
Dr. Equipment $7,760
Cr. Accounts Payable $7,760
￡200,000 x (1.3500-1.3112)
3. On April 31. Settlement Date
