Question

Cade Inc. had a CREDIT adjustment of $6800 for the year ended December 31, 2022, from restating its foreign subsidiary's accounts from their local currency units into U.S. dollars.Additionally, Cade had a receivable from a foreign customer. It is denominated in the customer's local currency. On December 31, 2021, this receivable for 280,000 local currency units (LCU) was correctly included in Cade's balance sheet at $120400. When the receivable was collected on May 10 2022, the U.S. dollar–equivalent was $108300.

In Cade's 2022 consolidated statement of income, how much should be reported as foreign exchange gain/(loss) in computing net income?

Answer 1

Cade Inc. experienced a foreign exchange loss of $12,100, which is the difference between the reported value of the receivable on the balance sheet ($120,400) and the value when collected ($108,300). This amount would be reported on the 2022 consolidated statement of income.

Step-by-step explanation:

The student is asking about the computation of foreign exchange gain or loss for a U.S. company that had a transaction in a foreign currency. The company had a receivable in local currency units (LCU) that was reported at a certain value in U.S. dollars at the end of the previous year. Upon collecting the receivable in the current year, the equivalent in U.S. dollars was different due to changes in the exchange rate. The gain or loss is calculated as the difference between the value of the receivable when it was included on the balance sheet versus the value when it was collected.

In this case, Cade Inc. had initially reported the receivable at $120,400 and collected it at $108,300. Therefore, the foreign exchange loss would be the difference between these two amounts. The loss calculated is $120,400 - $108,300 = $12,100. This loss would be reported on the 2022 consolidated statement of income.