Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows:

How much Foreign Exchange Gain or Loss should Brisco record on May 31?

A) $2,520,000 gain.
B) $20,000 gain.
C) $20,000 loss.
D) $80,000 gain.
E) $80,000 loss.

Question

Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows:

How much Foreign Exchange Gain or Loss should Brisco record on May 31?

A) $2,520,000 gain. 
B) $20,000 gain. 
C) $20,000 loss. 
D) $80,000 gain. 
E) $80,000 loss.

Quizplus · Accepted Answer

Brisco Bricks purchased raw materials from Bolivian Clay, and they owe 2,000,000 FC due in 30 days. At the fiscal year-end of Brisco Bricks, on May 31, there are no changes in the exchange rate, so the transaction does not result in any foreign exchange gain or loss. However, if there were a change in the exchange rate between the transaction date and the settlement date, then there would have been a gain or loss. Since there is no information given about any changes in the exchange rate, no gain or loss is recorded at the fiscal year-end. Therefore, option C is the correct answer.

Brisco Bricks Purchases Raw Material from Its Foreign Supplier, Bolivian