On September 1, 2019, a U.S.-based company with the $US as its functional currency purchased merchandise for 14,000 units of the foreign company’s local currency. On that date, the spot rate was $1.42. The U.S.-based company paid the bill in full on February 10, 2020, when the spot rate was $1.39. The spot rate was $1.38 on December 31, 2019.
What amount should the U.S.-based company report as a foreign currency transaction gain (loss) in its income statement for the year ended December 31, 2019?
Company will report $ 560 foreign currency gain in its income statement.
The Company must have created liabity on September 1, 2019 at the rate 1.42 $
Total Liability on September 1, 2019 = 14,000 * $ 1.42
= $ 19,880
Company will restate the liability on Decmber 31, 2019.
The Spot rate on December 31, 2019 = $ 1.38
Revised Liability = 14,000 * $ 1.38
= $ 19,320
Foreighn Currency Exchange Gain (loss) = $ 19,880 - 19,320
Foreighn Currency Transaction Gain = $ 560
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