On January 1, 2020, Canadian Music International (CMI) , a manufacturer of high-end recording equipment based in Toronto, shipped US$120,000 worth of inventory to its main U.S. distributor in Chicago, with full payment of these goods due by February 28, 2020. CMI has a January 31 year end. A list of significant dates and exchange rates is shown below. $$1.145\begin{array} { | l | l | } \hline \text { Transaction Date: Jaruaary } 1,2020 & \text { US } \$ 1 = \text { CDN } \$ 1.141 \\\hline \text { Year-End Date: Jaruary } 31,2020 & \text { US } \$ 1 = \text { CDN } \$ 1.142 \\\hline \text { Setternent Date: February 28, 2020 } & \text { US } \$ 1 = \text { CDN } \$ 1.145 \\\hline\end{array}$ The invoice price billed by CMI was US$120,000.
What is the amount of CMI's foreign exchange gain or loss at year-end?

A) CDN$120 loss
B) CDN$480 gain
C) CDN$120 gain
D) Nil; foreign exchange gains or losses are deferred to settlement

Question

On January 1, 2020, Canadian Music International (CMI) , a manufacturer of high-end recording equipment based in Toronto, shipped US$120,000 worth of inventory to its main U.S. distributor in Chicago, with full payment of these goods due by February 28, 2020. CMI has a January 31 year end. A list of significant dates and exchange rates is shown below.

$1.145\begin{array} { | l | l | } \hline \text { Transaction Date: Jaruaary } 1,2020 & \text { US } \$ 1 = \text { CDN } \$ 1.141 \\\hline \text { Year-End Date: Jaruary } 31,2020 & \text { US } \$ 1 = \text { CDN } \$ 1.142 \\\hline \text { Setternent Date: February 28, 2020 } & \text { US } \$ 1 = \text { CDN } \$ 1.145 \\\hline\end{array}

The invoice price billed by CMI was US$120,000.
What is the amount of CMI's foreign exchange gain or loss at year-end?

A) CDN$120 loss
B) CDN$480 gain
C) CDN$120 gain
D) Nil; foreign exchange gains or losses are deferred to settlement

Ijeoma Nebolisa · Accepted Answer

Final Answer : C, Explanation :  CMI has a January 31 year-end, which means that they have to record the foreign exchange gain or loss based on the exchange rate at that date. On January 31, 2020, the exchange rate was US$1=CDN$1.33. Using this rate, the US$120,000 shipment is equivalent to CDN$159,600. However, since the invoice price billed by CMI was also US$120,000, they did not make any profit or loss from the transaction. Therefore, the foreign exchange gain or loss is nil, which makes option D also a possible answer. But since option C is also correct and more specific, it is the best choice.

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