Outback Limited, an Australian company, purchased machinery from Southern Ranches Limited, a US company, on credit terms for US$600 000. At the transaction date, the exchange rate was US$1 = A$1.20. The journal entry recorded by Outback Limited for this purchase would be:
A) DR Machinery $720 000; CR Payable to Southern Ranches Limited $720 000.
B) DR Machinery $600 000; CR Payable to Southern Ranches Limited $600 000.
C) DR Receivable from Southern Ranches Limited $600 000; CR Cash $600 000
D) DR Machinery $720 000; CR Cash $720 000

Question

Quizplus · Accepted Answer

The correct journal entry for Outback Limited, an Australian company, to record the purchase of machinery on credit from Southern Ranches Limited, a US company, is to debit Machinery for A$720,000 and credit Payable to Southern Ranches Limited for A$720,000. This is because the transaction amount of US$600,000 is converted to Australian dollars at the exchange rate of US$1 = A$1.20, resulting in A$720,000 (600,000 * 1.20).

Outback Limited, an Australian Company, Purchased Machinery from Southern Ranches