Question

A U.S. manufacturer has sold computer services to a foreign firm, billed the firm and later received 200,000 foreign currency units (FC). The exchange rates were 1 FC = $.75 on the date of the sale and 1 FC = $.80 when the receivable was settled. On the transaction date, the settlement exchange rate is estimated to be 1 FC = $.72. By the settlement date, what is the total exchange gain or loss recorded for the transaction if the two-transaction method is used?

Answer 1

Answer:

$ 16,000

Explanation:

Given:

The foreign currency units received = 200,000

The exchange rates on the date of sale, 1 FC = $ 0.75

The exchange rates on the date of receivable settled , 1FC = $ 0.80

The exchange rates on the date of the transaction , 1FC = $ 0.72

Now,

the amount in Dollar on the date receivable settled = $ 0.80 ×  200,000

or

= $ 160,000

also,

the amount in Dollar on the date of the transaction = $ 0.72 ×  200,000

or

= $ 144,000

since, the amount in dollar on the date of transaction is less than the amount on the day receivable settled. thus, the loss will be recorded

Therefore,

the loss recorded will be = $ 160,000 - $ 144,000 = $ 16,000