Friday 6 June 2014

On May 8, 2013, Jett Company (a U.S. company) made a credit sale to Lopez (a Mexican company). The terms of the sale required Lopez to pay 610,000 pesos on February 10, 2014. Jett prepares quarterly financial statements on March 31, June 30, September 30, and December 31. The exchange rates for pesos during the time the receivable is outstanding follow. May 8, 2013 $ 0.1873 June 30, 2013 0.1882 September 30, 2013 0.1893 December 31, 2013 0.1876 February 10, 2014 0.1915 Compute the foreign exchange gain or loss that Jett should report on each of its quarterly income statements for the last three quarters of 2013 and the first quarter of 2014.

On May 8, 2013, Jett Company (a U.S. company) made a credit sale to Lopez (a Mexican company). The terms of the sale required Lopez to pay 610,000 pesos on February 10, 2014. Jett prepares quarterly financial statements on March 31, June 30, September 30, and December 31. The exchange rates for pesos during the time the receivable is outstanding follow.
 
  May 8, 2013 $ 0.1873  
  June 30, 2013 0.1882  
  September 30, 2013 0.1893  
  December 31, 2013 0.1876  
  February 10, 2014 0.1915  

  
Compute the foreign exchange gain or loss that Jett should report on each of its quarterly income statements for the last three quarters of 2013 and the first quarter of 2014.



Compute the amount to be reported on Jett's balance sheets at the end of each of its last three quarters of 2013.
Explanation:
Quarter ended June 30, 2013
  May 8 recorded amount (610,000 × $0.1873) $ 114,253  
  June 30 balance sheet amount (610,000 × $0.1882) 114,802  


   Foreign exchange gain $ 549  





 
Quarter ended September 30, 2013
  June 30 balance sheet amount $ 114,802  
  Sept. 30 balance sheet amount (610,000 × $0.1893) 115,473  


    Foreign exchange gain $ 671  





  
Quarter ended December 31, 2013
  Sept. 30 balance sheet amount $ 115,473  
  Dec. 31 balance sheet amount (610,000 × $0.1876) 114,436  


   Foreign exchange loss $ 1,037  





  
Quarter ended March 31, 2014
  Dec. 31 balance sheet amount $ 114,436  
  Feb. 10, 2014, amount received (610,000 × $0.1915) 116,815  


    Foreign exchange gain $ 2,379  





  
Note — The combined net gain for all four quarters equals:
                  $2,562  ($549 + $671 − $1,037 + $2,379).

This amount also equals the difference between the number of dollars finally received ($116,815) and the initial measure of the account receivable ($114,253).  In addition, this amount equals the number of pesos (610,000) owed by the customer times the change in the exchange rate ($0.0042) between the beginning rate ($0.1873) and the ending rate ($0.1915).

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