D is corrent. When payment for a purchase is in a currency other than the functional currency of the purchaser (in this case, the currency for the transaction is the euro), a foreign exchange transaction (gain) loss will result if the spot rate on the settlement date is different than the rate existing on the transaction date. Additionally, a provision must be made at any intervening year-end date for such rate changes. At 3/31/Y2 a $900 gain [30,000 × ($1.07 - $1.10)] would be recognized. On the date of settlement (4/20/Y2), a $1,500 loss [30,000 × ($1.12 - $1.07)] would be recognized. Therefore, Dale’s income statements would show a $900 foreign exchange transaction gain in F/Y 10 and a $1,500 loss in F/Y 11.
A is incorrect. When payment for a purchase is in a currency other than the functional currency of the purchaser (in this case, the currency for the transaction is the euro), a foreign exchange transaction (gain) loss will result if the spot rate on the settlement date is different than the rate existing on the transaction date. Additionally, a provision must be made at any intervening year-end date for such rate changes. At 3/31/Y2 a $900 gain [30,000 × ($1.07 - $1.10)] would be recognized. On the date of settlement (4/20/Y2), a $1,500 loss [30,000 × ($1.12 - $1.07)] would be recognized. Therefore, Dale’s income statements would show a $900 foreign exchange transaction gain in F/Y 10 and a $1,500 loss in F/Y 11.
B is incorrect. When payment for a purchase is in a currency other than the functional currency of the purchaser (in this case, the currency for the transaction is the euro), a foreign exchange transaction (gain) loss will result if the spot rate on the settlement date is different than the rate existing on the transaction date. Additionally, a provision must be made at any intervening year-end date for such rate changes. At 3/31/Y2 a $900 gain [30,000 × ($1.07 - $1.10)] would be recognized. On the date of settlement (4/20/Y2), a $1,500 loss [30,000 × ($1.12 - $1.07)] would be recognized. Therefore, Dale’s income statements would show a $900 foreign exchange transaction gain in F/Y 10 and a $1,500 loss in F/Y 11.
C is incorrect. When payment for a purchase is in a currency other than the functional currency of the purchaser (in this case, the currency for the transaction is the euro), a foreign exchange transaction (gain) loss will result if the spot rate on the settlement date is different than the rate existing on the transaction date. Additionally, a provision must be made at any intervening year-end date for such rate changes. At 3/31/Y2 a $900 gain [30,000 × ($1.07 - $1.10)] would be recognized. On the date of settlement (4/20/Y2), a $1,500 loss [30,000 × ($1.12 - $1.07)] would be recognized. Therefore, Dale’s income statements would show a $900 foreign exchange transaction gain in F/Y 10 and a $1,500 loss in F/Y 11.
|
