Question

Santa Barbara Company, a U.S. Company, purchased merchandise on account from a company in England. The price was 1,200 British pounds. At the time of the purchase, the exchange rate for a British pound was $ 1.52. At the time Santa Barbara Company paid for the merchandise, the exchange rate for a British pound was $1.56. What is the amount of the gain or loss recorded by the Santa Barbara Company upon payment?

A. Foreign currency transaction loss $48.

B. Foreign currency transaction gain $48

C. Foreign currency translation loss $1,884.

D. Foreign currency translation gain $1,884.

Answer 1

The Santa Barbara Company recorded a foreign currency transaction gain of $48 upon payment.

Step-by-step explanation:

The Santa Barbara Company purchased merchandise on account from a company in England. The price of the merchandise was 1,200 British pounds. At the time of the purchase, the exchange rate for a British pound was $1.52. However, when Santa Barbara Company paid for the merchandise, the exchange rate for a British pound had increased to $1.56.

To determine the gain or loss, we need to compare the amount paid in U.S. dollars at the time of the purchase to the amount paid in U.S. dollars at the time of payment.

Amount paid at the time of purchase: 1,200 British pounds * $1.52 = $1,824

Amount paid at the time of payment: 1,200 British pounds * $1.56 = $1,872

The difference between these amounts is $1,872 - $1,824 = $48. Therefore, the Santa Barbara Company recorded a foreign currency transaction gain of $48 upon payment.