Winston Corp., a U.S. company, had the following foreign currency transactions during 2011: (1.) Purchased merchandise from a foreign supplier on July 16, 2011 for the U.S. dollar equivalent of $47,000 and paid the invoice on August 3, 2011 at the U.S. dollar equivalent of $54,000.
(2)) On October 15, 2011 borrowed the U.S. dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15, 2011. The U.S. dollar equivalent of the note amount was $295,000 on December 31, 2011, and $299,000 on October 15, 2012.
What amount should be included as a foreign exchange gain or loss from the two transactions for 2011?
A) $9,000 loss.
B) $9,000 gain.
C) $11,000 loss.
D) $13,000 gain.
E) $14,000 gain.

Question

Quizplus · Accepted Answer

(1) The payment made for merchandise on August 3, 2011 resulted in a foreign exchange loss of $7,000 ($54,000 - $47,000).

(2) The borrowing on October 15, 2011 resulted in a foreign exchange gain of $20,000 ($315,000 - $295,000).

Therefore, the total foreign exchange gain for 2011 is $13,000 ($20,000 - $7,000).