Question

Let’s suppose you (USA dealer) imported a product from German on Dec 1, 2018 at € 300, payable in 60 days. You sold the product in the US market at $400 in cash on Dec 15, 2018. The company's fiscal year ends on Dec 31. You paid to your German supplier on Feb 1, 2019.  

Below, please find the exchange rate information:

Dec 1, 2018: 1.5 €/$.

Dec 31, 2018: 1.0 €/$.

Feb 1, 2019: 0.6 €/$.

What was net income for 2018 and 2019, respectively?

Correct!  

$100, -$200

   

-$200, $100

   

$150, $200

   

$100, -$100

Answer is A* I just need the steps please

Answer 1

Net income/loss for 2018:

Cost of product in euro	300
Sale price in ($)	$400
Euro liability as on 31st December in USD (300 / 1)	$300
Net income in 2018 (400 - 300)	$100

Net income/loss for 2019:

Paid to the german supplier on Feb 1 @0.6 Euro/$,

Therefore USD payable (300 / 0.6) = $500.

Euro liability as on 31st December in USD (300 / 1) = $300

Net loss for 2019 = ($300 - $500) = ($200)

Alternatively,

If you convert 300 euros first = $200 (300 / 1.5),

Then you sold a product on Dec 15 at $400. so gain on Dec 15 = $200 ($400 - $200).

On Dec 31 exchange rate is 1 euro / $ = $300. Loss = [$300 - ($200 Exchange amount on Dec 1)] = $100.

Net Income of 2018 = Gain on Dec 15 - Loss on Dec 31

Net Income of 2018 = $200 - $100

Net Income of 2018 = $100.