A is corrent. On 9/1/Y1, Span obtained a receivable which will be collected in a foreign currency. A gain (loss) will result if the exchange rate on the settlement date is different from the rate existing on the transaction date. A gain (loss) must be recognized at any intervening balance sheet dates, if necessary. Therefore, Span would recognize a $2,500 foreign exchange transaction loss in its year 1 income statement since a change in the exchange rate reduced the receivable (in US dollars) from $50,000 on 9/1/Y1 (250,000 *$.20) to $47,500 on 12/31/Y1 (250,000 *$.19). In year 2, a foreign exchange transaction gain of $5,000 is recognized because the receivable (in US dollars) increased from $47,500 on 12/31/Y1 to $52,500 when received (250,000 *$.21) on February 1, year 2.
B is incorrect. On 9/1/Y1, Span obtained a receivable which will be collected in a foreign currency. A gain (loss) will result if the exchange rate on the settlement date is different from the rate existing on the transaction date. A gain (loss) must be recognized at any intervening balance sheet dates, if necessary. Therefore, Span would recognize a $2,500 foreign exchange transaction loss in its year 1 income statement since a change in the exchange rate reduced the receivable (in US dollars) from $50,000 on 9/1/Y1 (250,000 * $.20) to $47,500 on 12/31/Y1 (250,000 * $.19). In year 2, a foreign exchange transaction gain of $5,000 is recognized because the receivable (in US dollars) increased from $47,500 on 12/31/Y1 to $52,500 when received (250,000 * $.21) on February 1, year 2.
C is incorrect. On 9/1/Y1, Span obtained a receivable which will be collected in a foreign currency. A gain (loss) will result if the exchange rate on the settlement date is different from the rate existing on the transaction date. A gain (loss) must be recognized at any intervening balance sheet dates, if necessary. Therefore, Span would recognize a $2,500 foreign exchange transaction loss in its year 1 income statement since a change in the exchange rate reduced the receivable (in US dollars) from $50,000 on 9/1/Y1 (250,000 × $.20) to $47,500 on 12/31/Y1 (250,000 × $.19). In year 2, a foreign exchange transaction gain of $5,000 is recognized because the receivable (in US dollars) increased from $47,500 on 12/31/Y1 to $52,500 when received (250,000 × $.21) on February 1, year 2.
D is incorrect. On 9/1/Y1, Span obtained a receivable which will be collected in a foreign currency. A gain (loss) will result if the exchange rate on the settlement date is different from the rate existing on the transaction date. A gain (loss) must be recognized at any intervening balance sheet dates, if necessary. Therefore, Span would recognize a $2,500 foreign exchange transaction loss in its year 1 income statement since a change in the exchange rate reduced the receivable (in US dollars) from $50,000 on 9/1/Y1 (250,000 * $.20) to $47,500 on 12/31/Y1 (250,000 * $.19). In year 2, a foreign exchange transaction gain of $5,000 is recognized because the receivable (in US dollars) increased from $47,500 on 12/31/Y1 to $52,500 when received (250,000 *$.21) on February 1, year 2.
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