Question

Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows:

May 8	Spot rate:	$	1.25
May 31	Spot rate:	$	1.26
Jun. 7	Spot rate:	$	1.20

A) For what amount should Brisco's Accounts Payable be credited on May 8?

B) How much Foreign Exchange Gain or Loss should Brisco record on May 31?

C) How much US $ will it cost Brisco to finally pay the payable on June 7?

Answer 1

a)

Amount in Foreign Currency	2,000,000
Spot rate on May 8	$             1.25
Accounts Payable be credited on May 8 (2,000,000*$1.25)	$   2,500,000

b)

Accounts Payable to be on May 31(2,000,000*$1.26)	$   2,520,000
Less: Accounts Payable be credited on May 8 (2,000,000*$1.25)	(2,500,000)
Foreign Exchange Loss should Brisco record on May 31	$        20,000

c)

Amount in Foreign Currency	2,000,000
Spot rate on June 7	$             1.20
payment of the payable on June 7 on May 8 (2,000,000*$1.20)	$   2,400,000

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