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Topic
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Shouldn’t the answer be zero because the G/L results from a foreign currency transaction, not a F.C. translation?
On October 1 of the current year, a U.S. company sold merchandise on account to a British company for 2,000 pounds (exchange rate, 1 pound = $1.43). At the company’s December 31 fiscal year end, the exchange rate was 1 pound = $1.45. The exchange rate was $1.50 on collection in January of the subsequent year. What amount would the company recognize as a gain (loss) from foreign currency translation when the receivable is collected?
A.
$-0-
B.
$100
C.
$140
D.
$(140)
Correct!
A foreign currency exchange gain will be recognized for the change in exchange rate between December 31 and the January collection date. That gain is computed as $1.45 -> $1.50 = $0.05 x 2,000 pounds = $100 gain.
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