ExpertMedium1 markMultiple Choice
CPA · Question 49 · Area I: Financial Reporting
On December 1, Year 1, US Corp. sells goods to a French customer for 100,000 Euros, due on January 30, Year 2. <br/>Exchange Rates:<br/>- Dec 1: 1 Euro = $1.10<br/>- Dec 31: 1 Euro = $1.08<br/>- Jan 30: 1 Euro = $1.12<br/><br/>What is the Foreign Currency Transaction Gain or Loss reported in US Corp's Year 1 Income Statement?
On December 1, Year 1, US Corp. sells goods to a French customer for 100,000 Euros, due on January 30, Year 2. <br/>Exchange Rates:<br/>- Dec 1: 1 Euro = $1.10<br/>- Dec 31: 1 Euro = $1.08<br/>- Jan 30: 1 Euro = $1.12<br/><br/>What is the Foreign Currency Transaction Gain or Loss reported in US Corp's Year 1 Income Statement?
Answer options:
A.
$2,000 Gain
B.
$0
C.
$2,000 Loss
D.
$4,000 Gain
How to approach this question
1. Record Receivable at spot rate on transaction date. 2. Revalue Receivable to spot rate at Balance Sheet date. 3. Difference is Gain/Loss.
Full Answer
C.$2,000 Loss✓ Correct
C
Dec 1 Value: 100,000 * $1.10 = $110,000.<br/>Dec 31 Value: 100,000 * $1.08 = $108,000.<br/>Decrease in Asset = $2,000 Loss.
Common mistakes
Confusing import (payable) vs export (receivable) impact; ignoring year-end revaluation.
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