An Australian Company Sells Goods Worth $AU 2000 to a US

question 22

Multiple Choice

An Australian company sells goods worth $AU 2000 to a US company and the goods are invoiced in US dollars.At the date of sale,the exchange rate is $AU 1.00 = $US 0.78.At the date the goods are paid for,the exchange rate is $AU 1.00 = $US 0.85.The Australian company should make the following entries to record the sale of the goods and the payment received (rounded) :

• A)\(\begin{array} { c c r }
• \text { A) Dr Accounts Receivable } & \$ 1560 & \\
• \text { Cr Sales } & & \$ 1560 \\
• \text { Dr Cash at Bank } & \$ 1725 & \\
• \text { Cr Exchange Gain } & & \$ 165 \\
• \text { Cr Accounts Receivable } & & \$ 1560
• \end{array}\)
• B)\(\begin{array}{l}
• \text { B) Dr Accounts Receivable } \quad \$ 2000\\
• \begin{array} { l r r }
• \quad \text { Cr Sales } & & \$ 2000 \\
• \text { Dr Cash at Bank } & \$ 1560 & \\
• \text { Dr Exchange Loss } & \$ 440 & \\
• \quad \text { Cr Accounts Receivable } & & \$ 2000
• \end{array}
• \end{array}\)
• C)\(\begin{array} { l l l }
• \text { C) Dr Accounts Receivable } & \$ 2000 & \\
• \quad \text { Cr Sales } & & \$ 2000 \\
• \text { Dr Cash at Bank } & \$ 2000 \\
• \text { Dr account receivable } & \$ 2000 &
• \end{array}\)
• D)\(\begin{array}{l}
• \text { D) Dr Accounts Receivable } \quad \$ 2000\\
• \begin{array} { l r r }
• \text { Cr Sales } & & \$ 2000 \\
• \text { Dr Cash at Bank } & \$ 1835 & \\
• \text { Dr Exchange Loss } & \$ 165 & \\
• \quad \text { Cr Accounts Receivable } & & \$ 2000
• \end{array}
• \end{array}\)

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Definitions:

Optimal Capital Structure

The most favorable mix of debt and equity financing that minimizes the company's cost of capital and maximizes its value.

EPS

Earnings Per Share, a financial metric used to indicate the profitability of a company on a per-share basis.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenue.

Financial Leverage

The use of borrowed funds with the goal to increase the potential return on investment.