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

Note :

• On December 31, 2017 , there is decrease in dollors in compare to value on date of sales . Thus foreign exchange loss in 2017 = ($1.27 - $1.24) * 175,000 ostras = $5,250.
• On January 10, 2018 , there is futher decrease in dollors in compare to value recorded on december 31 , 2017. Thus foreign exchange loss in 2018 = ($1.24 - $1.20) * 175,000 ostras = $7,000

Answer a

The ostra receivable decreases in dollar value, resulting in a foreign exchange loss of $5,250 in 2017.

Answer b

The ostra receivable decreases in dollar value, resulting in a foreign exchange loss of $7,000 in 2018