Accounting for a Foreign Currency Transaction
Response to the following problem:
On December 19, 2009, Mr. Jones Company performed services for Lamour Company. The contracted price for the services was 35,000 euros, to be paid on March 23, 2010. On December 19, 2009, one euro equaled $0.97. On December 31, 2009, one euro equaled $0.99, and on March 23, 2010, one euro equaled $0.94. Mr. Jones is a U.S. company
Required:
1. Make the journal entry on Mr. Jones' books to record the provision of services on December 19, 2009.
2. Make the necessary adjusting entry on Mr. Jones' books on December 31 to adjust the account receivable to its appropriate U.S. dollar value.
3. Make the journal entry on Mr. Jones' books to record the collection of the 35,000 euros on March 23.
4. Interpretive Question: Why would Mr. Jones, a U.S. company, agree to denominate the contract in euros instead of in U.S. dollars?