Cass Corporation's balance sheet at December 31, 2011 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, 2012 when the account receivable was collected and the exchange rate for the peso was $.09?

Question

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Cass Corporation would have recorded the accounts receivable denominated in Mexican pesos on their balance sheet as $48,480 / 600,000 pesos = $0.081 per peso. When the account receivable was collected, Cass received 600,000 pesos, which were then exchanged at the rate of $.09 per peso, resulting in $54,000. Thus, Cass would have made the following entry on January 16, 2012:

Debit Cash for $54,000 
Credit Accounts Receivable for $48,480 
Credit Foreign Exchange Gain for $5,520

Option A is incorrect because it only records the cash received and does not account for the original accounts receivable or foreign exchange gain. Option C is incorrect because it records the cash received at the wrong exchange rate. Option D is incorrect because it does not account for the foreign exchange gain.

Cass Corporation's Balance Sheet at December 31, 2011 Included a $48,480