Cass Corporation's balance sheet at December 31,2014 included a $48,480 account receivable from Redmun Corporation of Mexico.The account receivable was denominated as 600,000 Mexican pesos.What entry did Cass make on January 16,2015 when the account receivable was collected and the exchange rate for the peso was $.09?

Question

Quizplus · Accepted Answer

When the account receivable was collected, Cass Corporation recorded the following journal entry:

Cash (600,000 pesos x $0.09) $54,000 
Exchange Gain ($48,480 – $54,000) $5,520 
Accounts Receivable - Redmun Corporation $48,480

The exchange gain is recognized because the peso strengthened between the time the account receivable was recorded and the time it was collected, resulting in a greater amount of U.S. dollars received. Therefore, the best choice is B.

Cass Corporation's Balance Sheet at December 31,2014 Included a $48,480