On October 15, 20X5, Ibis Corporation, a French company, ordered merchandise listed on the Internet for 20,000 Euros from Spoonbill Corporation, a US corporation

On October 15, 20X5, Ibis Corporation, a French company, ordered merchandise listed on the Internet for 20,000 Euros from Spoonbill Corporation, a US corporation, which immediately accepted the order. The Euro rate was $1.20 US on October 15. On November 15, 20X5 Spoonbill shipped the goods and billed Ibis the purchase price of 20,000 Euros when the Euro rate was $1.30 US. Ibis paid the bill on December 10, 20X5. Three days later Spoonbill exchanged the 20,000 Euros for US dollars when the Euro rate was $1.28US. Required: Compute the foreign currency gains or losses on the December 31, 20X5 financial statements and show your calculations.

Answer

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In the question it was given that spoonbill received order to sell merchandise for 20,000 euros @ $1.20 on October 15

Later, goods were billed at 20,000 euros @ $ 1.30 on November 15

Payment was made for 20,000 euros @ $ 1.28 on December 10

Calculation of foreign currency gain/loss as on December 31 2015:

So, obviously goods were billed at $ 1.30 rate but were exchanged on december 13 ( 3 days later from dec 10) at $ 1.28.

so the loss amount is ($ 1.30 – $ 1.28) x 20,000 Euros = $ 400

Foreign currency Loss on the December 31, 20X5 financial statements of spoonbillis $ 400

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