As many firms increasingly operate in an international economy, not only are companies having transactions with others in foreign countries, but those transactions are sometimes denominated in a foreign currency. That is, if a company in the United States makes a purchase from a company in Japan, the U.S. Company may have to pay for the purchase in Japanese yen. Suppose American, Inc., purchased inventory from Japan, Inc., on December 15, 2011. Japan, Inc. expects to receive 1,000,000 Japanese yen in 30 days. To record a journal entry for this purchase, you would need to know what 1,000,000 yen are worth today. Suppose that on December 15, 2011, one yen is worth $0.07 (this is called an exchange rate). What journal entry would be made on American, Inc.’s books? Since exchange rates change every day, the amount of U.S. dollars to be paid on January 15, 2012, will likely be different than the originally recorded $70,000. In addition, to correctly state the liability on December 31, 2011, an adjustment will be required. Suppose that at year-end, one Japanese yen is worth $0.08. What adjusting entry would be made to reflect this change in exchange rates as of December 31, 2011?