6. Carry the difference in exchange to a reserve.
Solution
Conversion of London Trial Balance
| £ | £ | Rate of Conversion | $ | $ | |
|---|---|---|---|---|---|
| New York Control | 100,000 | 4.7475 | 474,750.00 | ||
| Remittances[70] | 50,000 | (See note) | 237,987.50 | ||
| Cash | 5,000 | 4.7545 | 23,772.50 | ||
| Customers | 75,000 | 4.7545 | 356,587.50 | ||
| Merchandise Inventory | 25,000 | 4.7475 | 118,687.50 | ||
| Furniture and Fixtures | 1,000 | 4.83 | 4,830.00 | ||
| Creditors. | 31,000 | 4.7545 | 147,389.50 | ||
| Sales | 150,000 | 4.7525 | 712,875.00 | ||
| Purchases | 95,000 | 4.7525 | 451,487.50 | ||
| Expenses | 30,000 | 4.7525 | 142,575.00 | ||
| Reserve for Fluctuations | |||||
| of Exchange | 913.00 | ||||
| 281,000 | 281,000 | 1,335,927.50 | 1,335,927.50 | ||
| Final Inventory £30,000 @ 4.7545 = $142,635 | |||||
Journal Entries to Adjust New York Books
| (1) Remittances | $237,987.50 | |
| London Control | $237,987.50 | |
| To Credit London with its remittances: £10,000 @ 4.75 = $47,500.00 10,000 @ 4.7575 = 47,575.00 10,000 @ 4.74875 = 47,487.50 10,000 @ 4.7625 = 47,625.00 10,000 @ 4.78 = 47,800.00 | ||
| (2) London Control | $712,875.00 | |
| London Profit and Loss | $712,875.00 | |
| To charge London with its sales: £150,000 @ 4.7525 | ||
| (3) London Profit and Loss | 118,687.50 | |
| London Control | 118,687.50 | |
| To credit London with initial inventory: £25,000 @ 4.7475 | ||
| (4) London Profit and Loss | 451,487.50 | |
| London Control | 451,487.50 | |
| To credit London with its purchases: £95,000 @ 4.7525 | ||
| (5) London Control | 142,635.00 | |
| London Profit and Loss | 142,635.00 | |
| To charge London with final inventory: £30,000 @ 4.7545 | ||
| (6) London Profit and Loss | 142,575.00 | |
| London Control | 142,575.00 | |
| To credit London with its expenses: £30,000 @ 4.7525 | ||
| (7) London Control | 913.00 | |
| Reserve for Exchange Fluctuations | 913.00 | |
| To charge London with the profit arising from conversion. | ||
| (8) London Profit and Loss | 142,760.00 | |
| Profit and Loss | 142,760.00 | |
| To transfer profit at London branch to general Profit and Loss. | ||
Appended are the London Control account as it would appear after posting the above entries on the New York books; and the London Profit and Loss account on the New York books.
London Control
| Items | Rate | £ | $ |
|---|---|---|---|
| Balance one year ago | 100,000 | 474,750.00 | |
| London Profit & Loss (Sales) | 4.7525 | 150,000 | 712,875.00 |
| London Profit & Loss (Final Inventory) | 4.7545 | 30,000 | 142,635.00 |
| Reserve for Exchange Fluctuations | 913.00 | ||
| 280,000 | 1,331,173.00 | ||
| Balance | 80,000 | 380,435.50 | |
| Items | Rate | £ | $ |
| Remittances | J(1) | 50,000 | 237,987.50 |
| See London Profit & Loss | 4.7475 | ||
| (Initial Inventory) | 4.7525 | 25,000 | 118,687.50 |
| London Profit & Loss (Purchases) | 4.7525 | 95,000 | 451,487.50 |
| London Profit & Loss (Expenses) | 30,000 | 142,575.00 | |
| Balance | 80,000 | 380,435.50 | |
| 280,000 | 1,331,173.00 | ||
| London Profit and Loss[71] | |||
| Initial Inventory | $118,687.50 | Sales | $712,875.00 |
| Purchases | 451,487.50 | Final Inventory | 142,635.00 |
| Expenses | 142,575.00 | ||
| Profit & Loss | 142,760.00 | ||
| $855,510.00 | $855,510.00 | ||