Question

Multiple Cholce L Select the best answer for cach of the following EXERCISE 12-5 A sale of goods by a U.S. company was denominated in a foreign currency. The sale resulted in a receivable that was fixed in terms of the amount of foreign currency that would be received. Exchange rates between the dollar and the curreney in which the transaction was denominated changed so that a loss was incurred. This loss should be included as a(n) 1. (a) Extraordinary item in the income statement. (b) Component of income from continuing operations (e) Separate component of stockholders' equity (d) Deferred item in the balance sheet On September 1, 2014, Change Corp. received an order for equipment from a foreign customer for 300,000 units of foreign currency when the U.S. dollar equivalent was $96,000. Change shipped the equipment on October 15, 2014, and billed the customer for 300,000 units of foreign currency when the U.S. dollar equiv- alent was $110,000. Change received the customer's remittance in full on November 16, 2014, and sold the 300,000 foreign curency units for $105,000. In its income statement for the year ended December 31, 2014, Change should report a foreign exchange loss of 2. (a) $9,000 (b) $5,000 (c) $14,000 (d) S-0 3. McNeil, a US. corporation, bought inventory items from a supplier in Denmark on November 5, 2014, for 100,000 krones, when the spot rate was S.4395. At McNeil's December 31, 2014, year-end, the spot rate was $.4345. On January 15, 2015, McNeil bought 100,000 krones at the spot rate of $.4445 and paid the invoice. How much should McNeil report in its income statement for 2014 and 2015 as transaction gain or loss? 2014 2015 (a) 5-0- (b) $500 loss (c) $500 loss (d) $500 gain $ 500 loss $-0- $1,000 gain $1,000 loss 4. During 2014 u US. firn sold inventory to à foreign customer. The transaction was denominated in the local

Answer 1

Part 1

Option B

B. component of income from continuing operations

The event is related to foreign currency (FC) transaction and not the FC translation, therefore the gain (or loss) would be reported as a component of income from continuing operations for the current period.

Part 2

Option B

B. $5000

Loss = 110000-105000 = $5000

Part 3

Option C

2014 = (4395-4345) = 50*10 = $500 (loss)

2015 = (4345-4445)*10 = 1000 (Gain)

Part 4

Option C

C. Loss (2014), (gain (2015)

Loss is recognized on the date of transaction whereas gain is cognized on the date of sale of asset.