(A) TRX, from Waltham, MA is a global firm that produces gadgets. It imports widgets, an important component of gadgets from Brazil, and exports gadgets to several countries, including Germany. TRX records international transactions using the two- transaction method: recognizing gains/losses at year-end and when final payments are recorded. TRX closes their books on December 31 of each year. The following two transactions took place during the year (2009). First, the firm imported 50,000 widgets from Brazil for Real (R$) 5 per widget. This credit transaction, on December 10, was to be completed on January 31, when the cash payments would need to be made to the seller. Second, the firm made a credit sale of 20,000 gadgets at 15 Euros each to a customer in Germany. The sale was made on December 15, 2009 and cash was to be received on January 15 of the next year.
Provide all entries necessary to record each of these transactions in December and January.
What is the impact of the transactions on the income statement and balance sheet as of 12/31?
The spot rates for the currencies were as follows:
12/10/2009 $0.60/R$ 12/15/2009 $1.50/Euro
12/31/2009 $0.65/R$ 12/31/2009 $1.65/Euro
1/31/2010 $0.62/R$ 1/15/2010 $1.60/Euro
(B) Using the example on p. 177 (Table 9.6), and the relevant exchange rates (US$/Rubles) as follows:
Historical rate = .002
December 31, 1998 (and Avg. during 1998) = 0.0013
December 31, 1999 (and Avg. during 1999) = 0.003
Compute the total cost of inventories (in US$) for the year ending 1999 using the temporal method (inventory cost in Rubles was 30,000).
How would this change if the current method was used?
Which of the two methods is more conservative and why (see Ch. 7 for definition of conservatism)
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