Asked by Laisha Molina Garcia on Jun 20, 2024
Verified
On November 1,2014,a U.S.company sold merchandise to a foreign company for 375,000 francs.The payment in francs is due on January 31,2015.The spot rate was as follows: $.20 per franc on November 1,2014;$.21 per franc on December 31,2014;and $.19 per franc on January 31,2015 when the payment was received.Which of the following incorrectly describes the accounting for this foreign currency transaction?
A) The receivable was recorded at $75,000 on November 1,2014.
B) The receivable was recorded at $78,750 on December 31,2014 balance sheet.
C) The foreign currency transaction gain included on the income statement for the year ending December 31,2014 was $3,750.
D) The foreign currency transaction loss included on the income statement for the year ending December 31,2015 was $3,750.
Foreign Currency Transaction
A business operation involving the exchange of currencies from two different countries.
Spot Rate
The current market price at which a particular currency can be bought or sold for immediate delivery.
Receivable
Amounts owed to a company by its customers or debtors for goods or services delivered that have not yet been paid.
- Examine the effects of transactions in foreign currencies on financial statements, highlighting the gains or losses from such transactions.
Verified Answer
PB
PHEERAPHAT BOONYAOJun 25, 2024
Final Answer :
D
Explanation :
November 1,2014 accounts receivable = 375,000 francs × $.20December 31,2014 accounts receivable = 375,000 francs × $.212014 transaction gain = 375,000 francs × $.01 ($.21 - $.20)
Learning Objectives
- Examine the effects of transactions in foreign currencies on financial statements, highlighting the gains or losses from such transactions.
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