Norwood Ltd contracts to buy a new machine tool from Illinois Tools Inc. at a price of $85 000 on the following terms of payment: 10 per cent on deliv- ery, 50 per cent after one month and the balance after a further two months. The machine is ordered on 1 September 20X1, leaves the Illinois factory on 1 October and reaches Norwood on 30 November. Norwood makes its payments on 1 December 20X1, 1 January 20X2 and 1 February 20X2. The £/$ exchange rates during this period were:
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1 Sept. 20X1
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£1 5 $1.20
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1 Oct. 20X1
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£1 5 $1.25
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30 Nov. 20X1
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£1 5 $1.20
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1 Dec. 20X1
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£1 5 $1.20
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31 Dec. 20X1
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£1 5 $1.15
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1 Jan. 20X2
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£1 5 $1.15
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1 Feb. 20X2
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£1 5 $1.10
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(a) On the assumption that the invoice was denominated in US dollars, show the balance sheet entries for Norwood at 31 December 20X1 and the income statement items for 20X1 and 20X2 which relate to this transaction.
(b) On the assumption that the invoice was agreed in sterling at £70 000, show the same financial statement items for Illinois Tools Inc.