Question

# Let’s suppose you (USA dealer) imported a product from German on Dec 1, 2018 at €...

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

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.

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