Question

On December 20, 2015, 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, 2016. Currency exchange rates for 1 ostra are as follows:

December 20, 2015	$	1.27
December 31, 2015		1.24
January 10, 2016		1.20

a.	How does the fluctuation in exchange rates affect Butanta’s 2015 income statement?

b.	How does the fluctuation in exchange rates affect Butanta’s 2016 income statement?

Answer 1

A)

The decrease in the dollar value of the Ostra Receivable is recorded as

$ 5,250 Foreign Exchange loss in 2015

B)

The decrease in the dollar value of the Ostra Receivable is recorded as

$ 7,000 Foreign Exchange loss in 2015

Explanation :

A) The decrease in the dollar value of the Ostra receivable from December 20,2015 (( 175,000 Ostras * $1.27 = $222,250 )

To December 31 ,2015 (175,000 * $1.24 = $ 217,000 ) is recorded as a $ 5,250 {$222,250 -$ 217,000} foreign exchange loss in 2015.

B) The decrease in the dollar value of the Ostra receivable from December 31,2015 (( 175,000 Ostras * $1.24 = $217,000 )

To January 10 ,2016 (175,000 * $1.20 = $ 210,000 ) is recorded as a $ 7,000 {$ 217,000 - $ 210,000} foreign exchange loss in 2016.