Refer to the opening feature in this chapter about Hannah Davis and her company, BANGS. Assume that the company must acquire the Japanese rights to the website BANGS, which will then be branded with its shoes for sale in Japan. Assume the company acquires those rights on January 1, 2015, from a Japanese distributor and agrees 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, 2015, the yen is worth $0.00891.
Required
1. Prepare the journal entry to record the Internet rights purchased on January 1, 2015.
2. Prepare the journal entries to record the payments on March 31, June 30, September 30, and December 31, 2015. 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 the company protect itself from unanticipated gains and losses from currency translation if all of the payments are specified to be paid in yen?