Blue Ltd. engages in transactions involving foreign currencies, namely the Australian dollar and U.S. dollar. Blue Ltd. engaged in the following transactions during 20X9:
1. Purchased inventory on 1 July for 50,000 US$ on account, with payment due in 30 days.
2. Purchased inventory on 17 July for 200,000 AUD$ on account, with payment due in 90 days.
3. Purchased inventory on 15 August for 75,000 US$ on account, payment due in 90 days.
4. Paid for the entire purchase in transaction 1 on 17 July.
5. Paid for the entire purchase in transaction 2 on 15 October.
6. Paid for the entire purchase in transaction 3 on 3 November.

Required:
1. Prepare journal entries for the above transactions. Blue Ltd. maintains a perpetual inventory system.
2. Explain how the historical cost concept is applied to inventory purchased in a foreign currency.
3. Explain how an exchange gain or loss may arise relating to foreign currency payables.

Transcribed Image Text:

1 July 17 July 15 August 15 October 3 November EXCHANGE RATES Canadian Equivalencies US$ 1.09 1.13 1.18 1.06 1.09 AUD$ 1.21 1.29 1.18 1.09 1.18