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On May 20, when the exchange rate was $1.40/£, a U.S. company purchased merchandise from a...

On May 20, when the exchange rate was $1.40/£, a U.S. company purchased merchandise from a U.K. supplier for £10,000 and paid for the merchandise on June 5, when the exchange rate was $1.38/£. On August 15, when the exchange rate was $1.23/€, the U.S. company sold the merchandise to a customer in Belgium at an invoice price of €16,000. On September 6, when the exchange rate was $1.21/€, the U.S. company received payment of €16,000 from the Belgian customer. The U.S. company's accounting year ends December 31.

What is the U.S. company's net exchange gain or loss for the year?

A.

$520 gain
B.

$520 loss
C.

$120 loss
D.

$120 gain
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Answer #1

The correct answer is C) $ 120 Loss

Calculation

Gain/ (loss) on exhange fluctutation

= (Purchases amount in USD - cash paid) + (Cash received from sale - sales recorded in USD

= ((10000*1.4) - (10000*1.38))+ ((16000*1.21)-(16000*1.23))

= (14000-13800) + (19360-19680)

= 200 +(-320)

= $(120)

Thus loss on exhange fluctuation is $ 120

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