Foreign Currency Transaction American, Inc., sells one widget to Japanese Company at an agreed-upon price of 1,000,000 yen. On the day of the sale, one yen is equal to $0.01. American, Inc., maintains its accounting records in U.S. dollars. Therefore, the amount in yen must be converted to U.S. dollars.

1. Provide the journal entry that would be made by American, Inc., on the day of the sale, assuming Japanese Company pays for the widget on the day of the sale.

2. Most sales are on account, meaning that payment will not be received for 30 days or even longer. What issues will arise for American, Inc., if the sale is made with payment due in 30 days? (Hint: What might happen to the value of the yen in relation to the dollar during the 30-day period?)

3. Suppose that 30 days from the date of the sale the value of one yen is equal to

$0.008. What journal entry would be made when the 1,000,000 yen are received by American, Inc.?