Problem: Importing Transaction
On November 2, 2020, WOW Company, a Philippine company, ordered goods from a US supplier for USD 20,000. The inventory was shipped and invoiced on December 1, 2020, to be paid in US Dollars on February 28, 2021. The spot rates for US Dollars are as follows:
Selling Spot Rate Buying Spot Rate
November 2, 2020 P80.50 P79.60
December 1, 2020 81.10 80.00
December 31, 2020 81.60 81.40
February 28, 2021 81.30 81.20
Task
I. Prepare the journal entries to record the transactions in the books of WOW Company.
II. What amount should the merchandise purchased be reported in 2020?
III. What amount should be reported as liability to the supplier (or accounts payable) on December 31, 2020?
IV. What amount of foreign exchange gain or loss should be recorded on December 31, 2020?
V. What amount of foreign exchange gain or loss should be recorded on February 28, 2021?
VI. How much peso will it cost the company to finally pay the account on February 28, 2021?