Excel Sources Inc. is a U.S. incorporated company. Due to change in exchange rate, it receives $150,000 as payment against a sale of $165,000. Under the two-transaction perspective:
A) no journal entry will be prepared on the date of sale.
B) the sale will be recorded at $150,000 on the date of sale.
C) foreign exchange loss will be recorded for $15,000.
D) Accounts Receivable will be debited for $15,000 on the date of payment.

Question

Quizplus · Accepted Answer

Under the two-transaction perspective, foreign exchange gain or loss is recognized when payment is received or made, and not on the date of sale. In this case, since Excel Sources Inc. received $150,000 instead of $165,000 due to the change in exchange rate, a foreign exchange loss of $15,000 will be recorded. Therefore, option C is the best choice.