ExpertMedium1 markMultiple Choice
CPA · Question 48 · Area I: Financial Reporting
On December 1, Year 1, a US company purchased goods from a European supplier for 100,000 Euros, payable on February 1, Year 2. <br/>Exchange rates:<br/>Dec 1: 1 Euro = $1.10<br/>Dec 31: 1 Euro = $1.12<br/>Feb 1: 1 Euro = $1.08<br/><br/>What is the Foreign Currency Transaction Gain/Loss reported in Year 1 Net Income?
On December 1, Year 1, a US company purchased goods from a European supplier for 100,000 Euros, payable on February 1, Year 2. <br/>Exchange rates:<br/>Dec 1: 1 Euro = $1.10<br/>Dec 31: 1 Euro = $1.12<br/>Feb 1: 1 Euro = $1.08<br/><br/>What is the Foreign Currency Transaction Gain/Loss reported in Year 1 Net Income?
Answer options:
A.
$2,000 Gain
B.
$0
C.
$2,000 Loss
D.
$4,000 Gain
How to approach this question
1. Record initial liability ($110k). 2. Revalue at Year-End ($112k). 3. Difference is Gain/Loss. Liability grew -> Bad -> Loss.
Full Answer
C.$2,000 Loss✓ Correct
C
Dec 1: 100k * 1.10 = $110,000.<br/>Dec 31: 100k * 1.12 = $112,000.<br/>Liability increased by $2,000. Loss of $2,000.
Common mistakes
Confusing gain/loss direction; waiting until settlement to record.
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