Kitna, a U.S. corporation with customers in several foreign countries, had the following selected transactions for 2009 and 2010.
May 26 Sold merchandise for 5.5 million yen to Fuji Company of Japan, payment in full to be received in 60 days. On this day, the exchange rate for yen is $0.0088.
June 1 Sold merchandise to Fordham Ltd. of Great Britain for $73,500 cash. The exchange rate for pounds is $2.0331 on this day.
July 25 Received Fuji’s payment in yen for its May 26 purchase and immediately exchanged the yen for dollars. The exchange rate for yen is $0.0087 on this day.
Oct. 15 Sold merchandise on credit to Martinez Brothers of Mexico. The price of 425,000 pesos is to be paid 90 days from the date of sale. On this day, the exchange rate for pesos is $0.0932.
Dec. 6 Sold merchandise for 300,000 yuans to Chi-Ying Company of China, payment in full to be received in 30 days. The exchange rate for yuans is $0.1335 on this day.
Dec. 31 Recorded adjusting entries to recognize exchange gains or losses on Kitna’s annual financial statements. Rates of exchanging foreign currencies on this day follow.
Yen (Japan) . . . . . . . . . . . . . $0.0089
Pounds (Britain) . . . . . . . . . 2.0402
Pesos (Mexico) . . . . . . . . . 0.0994
Yuans (China) . . . . . . . . . . 0.1351
Jan. 5 Received Chi-Ying’s full payment in yuans for the December 6 sale and immediately ex-
changed the yuans for dollars. The exchange rate for yuans is $0.1372 on this day.
Jan. 13 Received full payment in pesos from Martinez for the October 15 sale and immediately
exchanged the pesos for dollars. The exchange rate for pesos is $0.0960 on this day.
1. Prepare journal entries for the Kitna transactions and adjusting entries.
2. Compute the foreign exchange gain or loss to be reported on Kitna’s 2009 income statement.
3. What actions might Kitna consider to reduce its risk of foreign exchange gains or losses?