Assignment Choice 1 Sale Journal Entries Garden Grove Corpor

Assignment Choice 1 Sale Journal Entriesgarden Grove Corporation Mad

Assignment Choice #1: Sale Journal Entries Garden Grove Corporation made a sale to a foreign customer on September 15, Year 1, for 100,000 foreign currency units (FCU). Payment was received on October 15, Year 1. The following exchange rates apply: Date U.S. Dollar per FCU September 15, Year 1 . . . . . . . . $0.40 September 30, Year 1 . . . . . . . . . 0.42 October 15, Year 1 . . . . . . . . . . 0.37 Using Excel, prepare all journal entries for Garden Grove Corporation in connection with this sale, assuming that the company closes its books on September 30 to prepare interim financial statements. In addition, write a 1-page response to the following questions: · Why do currency differences affect foreign exchange reporting? · What difference has the introduction of comprehensive income statements made to U.S. accounting for foreign exchange? · Why do you think it has been so difficult for accounting regulators to deal with accounting for foreign exchange over the last 25 years? Insert your Excel spreadsheet into your Word document so that you only have one document to submit. Support your statements with a minimum of two (2) sources in addition to your textbook. Your response and citations should be cited according to the CSU-Global Guide to Writing and APA Requirements .

Paper For Above instruction

The complexities of international trade and finance necessitate a robust understanding of foreign exchange transactions and their accounting implications. This paper addresses the journal entries required for a foreign currency sale made by Garden Grove Corporation, analyzes the impact of currency fluctuations on financial reporting, examines the role of comprehensive income statements, and discusses the challenges faced by regulators in managing foreign exchange accounting over the past quarter-century.

Introduction

Foreign exchange transactions are integral to multinational operations, requiring meticulous accounting to accurately reflect financial performance amid fluctuating currency values. The case of Garden Grove Corporation’s sale in foreign currency exemplifies the need for precise journal entries and a deep understanding of how currency movements influence financial statements. Moreover, the evolution of accounting standards, including the adoption of comprehensive income statements, has significantly shaped reporting practices. This paper will develop journal entries based on provided exchange rates, explore the reasons behind currency differences affecting reporting, analyze the effects of comprehensive income on foreign exchange accounting, and discuss the challenges faced by regulators.

Journal Entries for Garden Grove Corporation

The initial sale transaction on September 15, Year 1, involved a foreign currency receivable of 100,000 FCU. At the prevailing exchange rate of $0.40 per FCU, the journal entry recognized the sale at the equivalent in USD, and an accounts receivable was recorded. Since the books close on September 30 to prepare interim financials, the exchange rate on that date impacts the reporting of this receivable.

Initial Sale on September 15, Year 1:

Debit: Accounts Receivable (Foreign) - 100,000 FCU * $0.40 = $40,000


Credit: Sales Revenue - $40,000

Adjustment for Exchange Rate Fluctuation (as of September 30, Year 1):

Since the rate increased from $0.40 to $0.42, the USD value of the accounts receivable has increased, requiring an adjustment.

Debit: Foreign Exchange Loss (or Credit: Foreign Exchange Gain) - ($42,000 - $40,000) = $2,000


Credit: Accounts Receivable - $2,000

This adjustment recognizes the unrealized currency gain due to exchange rate movements, which affects earnings before the final settlement.

Receipt of Payment on October 15, Year 1:

By this date, the exchange rate has declined to $0.37 per FCU. The USD amount received is 100,000 FCU * $0.37 = $37,000. The difference between the receivable’s USD value and the cash received results in a foreign exchange loss.

Debit: Cash - $37,000


Debit: Foreign Exchange Loss - ($40,000 - $37,000) = $3,000


Credit: Accounts Receivable - $40,000

These journal entries reflect the impact of currency fluctuations on the company's financial statements and highlight the need for continuous adjustment of foreign currency receivables.

Impacts of Currency Differences and Comprehensive Income

Currency differences influence foreign exchange reporting primarily because they introduce volatility into financial statements. Variations in exchange rates can result in gains or losses that are unrealized until settlement, affecting reported earnings and capital. Recognizing these fluctuations ensures that financial statements convey an accurate picture of a company's financial position in a foreign environment (Kieso, Weygandt, & Warfield, 2020).

The introduction of comprehensive income statements has transformed U.S. accounting for foreign exchange by consolidating unrealized gains and losses into a single financial statement, rather than segregating them into different accounts. This approach offers a more holistic view of a company's economic performance, reflecting all components of income, which improves comparability and transparency for investors (FASB, 2015).

Challenges for Regulators in Foreign Exchange Accounting

Regulators have faced significant difficulties over the past 25 years in establishing consistent, clear-cut standards for foreign exchange accounting. The volatile nature of currency markets complicates the measurement and reporting of gains and losses. Additionally, divergent accounting frameworks across countries create complexities in establishing harmonized standards. The evolving global economic landscape, technological changes, and differing stakeholder interests have further impeded regulator efforts to define uniform policies (Elliott & William, 2004). The challenge lies in balancing the need for transparency and comparability with the inherent unpredictability of foreign exchange movements.

Conclusion

In conclusion, mastering the accounting treatment of foreign currency transactions is essential for accurate financial reporting. The journal entries related to Garden Grove Corporation’s sale illustrate how currency fluctuations impact accounts receivable and earnings. Currency differences affect reporting by introducing volatility and unrealized gains or losses, which comprehensive income statements help encompass. The difficulties faced by regulators stem from currency volatility, differing national standards, and the complexity of international financial reporting. Understanding these issues is crucial for accountants, investors, and policymakers engaged in global commerce.

References

  • Elliott, B., & William, W. (2004). International Accounting. McGraw-Hill Irwin.
  • FASB. (2015). Accounting Standards Codification Topic 830: Foreign Currency Matters. Financial Accounting Standards Board.
  • Kieso, D., Weygandt, J., & Warfield, T. (2020). Intermediate Accounting (17th ed.). Wiley.
  • Libby, T., Libby, R., & Short, D. (2019). Financial Accounting (10th ed.). McGraw-Hill Education.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • International Accounting Standards Board. (2018). IAS 21 The Effects of Changes in Foreign Exchange Rates.
  • Financial Accounting Standards Board. (2017). ASC 830: Foreign Currency Matters.
  • Revsine, L., Collins, D., & Johnson, W. (2015). Financial Reporting & Analysis. Pearson.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2021). Corporate Finance. McGraw-Hill Education.
  • Baker, C. R., & Powell, P. (2000). Understanding Financial Statements. South-Western College Pub.

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