On January 1, ABC Corporation, aU.S. based manufacturer, buys 10 million yen worth of inventory from SACorporation, a Japanese-based firm.Thepurchase is made on credit and the balance is to be paid...

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, we have...