Assume that on December 1, 2016, we purchased a product from a manufacturer located in Ireland and that manufacturer requires payment in EUROS. Our company purchased 6,000 units of product at a sales price of 10 EUROS per unit and the exchange rate on the date of sale is $1.20 to 1 EURO. The invoice terms are 60 days and the due date is January 31, 2017. Assume that the exchange rate rises to $1.25 to 1 EURO on December 31 and to $1.30 to 1 EURO on January 31, 2017.
A) Prepare the journal entries for the date of the purchase, December 31, 2016 to the date of payment.
B) Prepare the journal entries for the date of purchase, December 31, 2016 and the date of payment assuming that we are selling the inventory instead of purchasing it.
C) What risks do the company face in part A. How could they manage this risk. Be Specific
D) What risks do the company face in Part B. How could they manage this risk. Be specific.