The balance in Newsprint Corp.'s foreign exchange loss account was $10,000 on December 31, 20X8, before any necessary year-end adjustment relating to the following:
(1) Newsprint had a $15,000 debit resulting from the restatement in dollars of the accounts of its wholly owned foreign subsidiary for the year ended December 31, 20X8.
(2) Newsprint had an account payable to an unrelated foreign supplier, payable in the supplier's local currency unit (LCU) on January 15, 20X9. The U.S. dollar-equivalent of the payable was $50,000 on the December 1, 20X8, invoice date and $53,000 on December 31, 20X8.
Based on the information provided, in Newsprint's 20X8 consolidated income statement, what amount should be included as foreign exchange loss in computing net income, if the U.S. dollar is the functional currency and the remeasurement method is appropriate?
A) $15,000
B) $10,000
C) $25,000
D) $28,000

Question

Quizplus · Accepted Answer

The foreign exchange loss includes the $15,000 from the restatement of the subsidiary's accounts and the $3,000 loss from the change in the payable's value ($53,000 - $50,000), totaling $18,000. Adding the initial $10,000 balance results in a total foreign exchange loss of $28,000.

The Balance in Newsprint Corp