Assume that MAK agrees to purchase US$500,000 for C$550,000 on January 15,2013.The exchange rate at year end is US$1 = C$0.95 and the January 15,2013 exchange rate is US$1 = C$0.97.What journal entry is required at year end?
A)0
B)$65,000 loss.
C)$75,000 gain.
D)$75,000 loss.

Question

Quizplus · Accepted Answer

The exchange rate has depreciated from C$0.97 to C$0.95, resulting in a loss for MAK. The calculation for the loss is:

US$500,000 / C$0.97 = C$515,463.92 (cost of US dollars on January 15, 2013)
US$500,000 / C$0.95 = C$526,315.79 (value of US dollars at year end)
C$526,315.79 - C$515,463.92 = C$10,851.87 loss
C$10,851.87 loss x 1.30 (exchange rate on January 15, 2013) = US$14,107.43 loss

Therefore, the journal entry at year end would be:

Loss on foreign exchange transaction       $14,107.43
  Accounts payable - foreign currency      $14,107.43

Assume That MAK Agrees to Purchase US$500,000 for C$550,000 on January