Ryan Company borrow $45,000 US when the exchange rate for US $1.00 is Cdn.$1.46.When the debt was repaid the exchange rate changes to US $1.00 = Cdn.$1.38.Ryan Company records the amount on the date of exchange as:
A) A foreign exchange loss of $3,600.
B) A foreign exchange gain of $3,600.
C) A foreign exchange gain of $62,100.
D) A foreign exchange loss of $62,100.

Question

Quizplus · Accepted Answer

When Ryan Company borrowed $45,000 US at an exchange rate of US $1.00 = Cdn.$1.46, they received Cdn. $65,700 ($45,000 multiplied by 1.46). When they repaid the debt, the exchange rate was US $1.00 = Cdn.$1.38. Therefore, the amount of Cdn. dollars needed to repay $45,000 US was Cdn. $62,100 ($45,000 multiplied by 1.38). Thus, Ryan Company saved Cdn. $3,600 ($65,700 - $62,100) in the repayment. This saved amount is recorded as a foreign exchange gain.

Ryan Company Borrow $45,000 US When the Exchange Rate for US