I have a general concept question;
for foreign transaction gains or losses which dates do you use to calculate the gain or loss? I always seem to get it wrong. I know you use the spot rate but do you calculate the gain or loss from the day the payable/receivable is recorded to year end (12/31) or when the company actually pays or receives the money. Or is it from year end (12/31) to when they pay or receive the money?
For example:
On September 22, 20X1, Yumi Corp. purchased merchandise from an unaffiliated foreign company for 10,000 units of the foreign company's local currency. On that date, the spot rate was $.55. Yumi paid the bill in full on March 20, 20X2, when the spot rate was $.65. The spot rate was $.70 on December 31, 20X1. What amount should Yumi report as a foreign currency transaction loss in its income statement for the year ended December 31, 20X1?
A.$0
B.$500
C.$1,000
D.$1,500
In this case, the gain is 1500 (D) from the original 9/22 rate to 12/31 rate ; however,
On September 1, 20X1, Cano & Co., a U.S. corporation, sold merchandise to a foreign firm for 250,000 francs. Terms of the sale require payment in francs on February 1, 20X2. On September 1, 20X1, the spot exchange rate was $.20 per franc. At December 31, 20X1, Cano's year-end, the spot rate was $.19, but the rate increased to $.22 by February 1, 20X2, when payment was received. How much should Cano report as foreign exchange gain or loss in its 20X2 income statement?
A.$0
B.$2,500 loss
C.$5,000 gain
D.$7,500 gain
in this case the answer is 7500 gain (D) which is from the 12/31 rate to the 2/1 rate. Originally I thought is was a 2500 loss.
I do not understand why you use different dates and when to use which ones to calculate the gain or loss. This is very confusing so any help is extremely appreciated!!
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