Part A (i) On November 2, 2017, Johnson Corporation purchased equipment from a D
ID: 2592474 • Letter: P
Question
Part A
(i) On November 2, 2017, Johnson Corporation purchased equipment from a Dutch supplier at a price of Euro 1,000,000. Payment was to be made on February 3, 2018. The bank exchange rates were shown below:
11-2-2017
12-31-2017
2-3-2018
Spot rate
Euro 1 = US$1.18
Euro 1 = US$1.21
Euro 1 = US$1.20
What is the effect of exchange gains and losses on 2017 and 2018 income?
2017 2018
a. $30,000 exchange loss $10,000 exchange gain
b. $30,000 exchange gain $10,000 exchange loss
c. No effect $20,000 exchange loss
d. No effect $20,000 exchange gain
11-2-2017
12-31-2017
2-3-2018
Spot rate
Euro 1 = US$1.18
Euro 1 = US$1.21
Euro 1 = US$1.20
Explanation / Answer
2017 2018
Ans is a. $30,000 exchange loss $10,000 exchange gain
Explanation: Since Johnson corporation is a us corporation and have purchased from dutch supplier and payment is to be made in Euro.
Rate of Euro on 11-2-2017 is US$1.18 that is increased to US$1.21 so net loss of US$.03 per Euro is to be recorded that comes to 30,000 exchange loss.
This rate is decreased to US $1.20 so a net gain of US $.01 per Euro is to be recorded that comes to $10,000 gain