A is corrent. On October 1 of the current year, the company would record the accounts receivable and sale at the spot rate of $2,860 (2,000 pounds × $1.43). At the end of the year, the account receivable would be adjusted to the end of year spot rate. In this case, the account receivable would be revalued to $2,900 (2,00 pounds × $1.45 ), and an adjustment would be made to accounts receivable by debiting accounts receivable by $40 and crediting a gain on foreign currency transactions for $40. This gain on foreign currency transactions would be recognized in the income statement of the current year. In the subsequent year, when the receivable was collected, the exchange rate was $1.50. Accordingly, the account receivable would be revalued to $3,000 (2,000 pounds × $1.50), and a gain of $100 ($3,000 less $2,900 fair value at end of previous year) would be recognized in income in the year that the receivable is collected.
B is incorrect. On October 1 of the current year, the company would record the accounts receivable and sale at the spot rate of $2,860 (2,000 pounds × $1.43). At the end of the year, the account receivable would be adjusted to the end of year spot rate. In this case, the account receivable would be revalued to $2,900 (2,00 pounds × $1.45 ), and an adjustment would be made to accounts receivable by debiting accounts receivable by $40 and crediting a gain on foreign currency transactions for $40. This gain on foreign currency transactions would be recognized in the income statement of the current year. In the subsequent year, when the receivable was collected, the exchange rate was $1.50. Accordingly, the account receivable would be revalued to $3,000 (2,000 pounds × $1.50), and a gain of $100 ($3,000 less $2,900 fair value at end of previous year) would be recognized in income in the year that the receivable is collected.
B is incorrect. On October 1 of the current year, the company would record the accounts receivable and sale at the spot rate of $2,860 (2,000 pounds × $1.43). At the end of the year, the account receivable would be adjusted to the end of year spot rate. In this case, the account receivable would be revalued to $2,900 (2,00 pounds × $1.45 ), and an adjustment would be made to accounts receivable by debiting accounts receivable by $40 and crediting a gain on foreign currency transactions for $40. This gain on foreign currency transactions would be recognized in the income statement of the current year. In the subsequent year, when the receivable was collected, the exchange rate was $1.50. Accordingly, the account receivable would be revalued to $3,000 (2,000 pounds × $1.50), and a gain of $100 ($3,000 less $2,900 fair value at end of previous year) would be recognized in income in the year that the receivable is collected.
D is incorrect. On October 1 of the current year, the company would record the accounts receivable and sale at the spot rate of $2,860 (2,000 pounds × $1.43). At the end of the year, the account receivable would be adjusted to the end of year spot rate. In this case, the account receivable would be revalued to $2,900 (2,00 pounds × $1.45 ), and an adjustment would be made to accounts receivable by debiting accounts receivable by $40 and crediting a gain on foreign currency transactions for $40. This gain on foreign currency transactions would be recognized in the income statement of the current year. In the subsequent year, when the receivable was collected, the exchange rate was $1.50. Accordingly, the account receivable would be revalued to $3,000 (2,000 pounds × $1.50), and a gain of $100 ($3,000 less $2,900 fair value at end of previous year) would be recognized in income in the year that the receivable is collected.
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