Assume that you acquire the Japanese rights to publish and print Wii “cheats” and gaming information from Nintendo for translation for the U.S. audience. Further, assume that on January 1, 2010, you agree to pay 12,000,000 yen per year for those rights. Quarterly payments are due March 31, June 30, September 30, and December 31 each year. On January 1, 2010, the yen is worth $0.00891.
Required
1. Prepare the journal entry to record the publishing rights purchased on January 1, 2010.
2. Prepare the journal entries to record the payments on March 31, June 30, September 30, and December 31, 2010. The value of the yen on those dates follows.
March 31 . . . . . . . . . . . . $0.00893
June 30 . . . . . . . . . . . . . . 0.00901
September 30 . . . . . . . . 0.00902
December 31 . . . . . . . . . 0.00897
3. How can you protect yourself from unanticipated gains and losses from currency translation if all of your payments are specified to be paid in yen?