Question

Benjamin, Inc., operates an export/import business. The company has considerable dealings with companies in the country...

Benjamin, Inc., operates an export/import business. The company has considerable dealings with companies in the country of Camerrand. The denomination of all transactions with these companies is alaries (AL), the Camerrand currency. During 2017, Benjamin acquires 20,000 widgets at a price of 8 alaries per widget. It will pay for them when it sells them. Currency exchange rates for 1 AL are as follows:

September 1, 2017 $0.46
December 1, 2017 0.44
December 31, 2017 0.48
March 1, 2018 0.45

  1. Assume that Benjamin acquired the widgets on December 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018?

  2. Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on December 1, 2017. What is the effect of the exchange rate fluctuations on reported income in 2017?

  3. Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018?

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Answer #1

ANSWER

Effect of Exchange Rate fluctuations
a. 2017 Foreign Exchange Loss

6,400

=160000*(.48-.44)

= 6400
2018 Foreign Exchange Gain

4,800

= [(70400+6400) - (160000*.45)]

= 76800 - 72000

= 4800
b 2017 Foreign Exchange Gain

3200

= 73,600 - 70400

= 3200
c. 2017 Foreign Exchange Loss 3200
2018 Foreign Exchange Gain

4800

= 76800 - 72000

= 4800

12/1/2017 Inventory 70,400

Accounts Payable (AL)(70,400)

12/31/2017 Foreign Exchange Loss 6,400 160000*(.48-.44)

Accounts Payable (AL) (6,400)

3/1/2018 Accounts Payable (AL)76,800 (70400)+(6400)

Cash (72,000) 160000*.45

Foreign Exchange Gain 4,800

2).

Date of Sale Inventory 73,600

Accounts Payable (AL)(73,600)

Date of Collection Accounts Payable (AL) 73,600

Cash(70,400)

Foreign Exchange Gain(3,200)

3).

12/31/2017 Foreign Exchange Loss 3,200

Accounts Payable (AL) (3,200)

3/1/2018 Accounts Payable (AL) 76,800

Cash(72,000)

Foreign Exchange Gain(4,800)

_____________________________________________

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