Matthias Corp. had the following foreign currency transactions during 2017: Purc
ID: 2595364 • Letter: M
Question
Matthias Corp. had the following foreign currency transactions during 2017:
Purchased merchandise from a foreign supplier on January 20 for the U.S. dollar equivalent of $60,000 and paid the invoice on April 20 at the U.S. dollar equivalent of $50,000.
On September 1, borrowed the U.S. dollar equivalent of $300,000 evidenced by a note that is payable in the lender's local currency in one year. On December 31, the U.S. dollar equivalent of the principal amount was $320,000.
In Matthias's 2017 income statement, what amount should be included as a net foreign exchange gain or loss?
Explanation / Answer
1. Mechandise cost = 60000$
Paid invoice = 50000$
Gain on transaction = 60000-50000= 10000$ gain
2. Borrowed = $300000
Principal amount = $320000
Loss = 300000-320000 = $20000 Loss
So (10000 gain +(-20000)Loss) = (10000) Loss will be included in the income statement of matthias as foriegn exchange net loss.