Question

On December 20, 2017, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign customer at a price of 175,000 ostras. Payment is received on January 10, 2018. Currency exchange rates for 1 ostra are as follows:

December 20, 2017	$	1.27
December 31, 2017		1.24
January 10, 2018		1.20

How does the fluctuation in exchange rates affect Butanta's 2017 income statement?

How does the fluctuation in exchange rates affect Butanta's 2018 income statement?

a.	The ostra receivable		in dollar value, resulting in a foreign
	exchange		of		in 2017.
b.	The ostra receivable		in dollar value, resulting in a foreign
	exchange		of		in 2018

Answer 1

a) The ostra receivable decrease in the dollar value, resulting in a foreign exchange $5,250 of gain in 2017.

The decrese in the dollar value of a foreign exchange from December 20, 2017 (175,000 * 1.27 = $222,250) to December 31,2017 (175,000 * 1.24 = $217,000) is recorded as a $5,250 foreign exchange gain in 2017.

b) The ostra receivable decrease in the dollar value, resulting in a foreign exchange $12,250 of gain in 2018.

The decrease in the dollar value of a foreign exchange from December 31, 2017 ($222,250) to January 10, 2018 (175,000 * 1.20 = $210,000) is recorded as a $12,250 foreign exchange gain in 2015.