ExpertHard1 markMultiple Choice
CPA · Question 39 · Area 3: Select Transactions
US Company sells goods to a French customer for 10,000 Euros on Dec 1. Rate = $1.10. On Dec 31, Rate = $1.15. On Jan 15, payment is received when Rate = $1.12. What is the impact on Year 1 Net Income?
US Company sells goods to a French customer for 10,000 Euros on Dec 1. Rate = $1.10. On Dec 31, Rate = $1.15. On Jan 15, payment is received when Rate = $1.12. What is the impact on Year 1 Net Income?
Answer options:
A.
$500 Gain
B.
$200 Gain
C.
$500 Gain in OCI
D.
$0
How to approach this question
1. Calculate value at transaction date. 2. Calculate value at Balance Sheet date. 3. Difference is Gain/Loss in Net Income.
Full Answer
A.$500 Gain✓ Correct
A
Foreign currency transaction gains/losses are recognized in Net Income in the period the exchange rate changes. Year 1 Gain = 10,000 * ($1.15 - $1.10) = $500.
Common mistakes
Waiting until settlement to recognize the gain.
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