Question

brief, incorporated, had a receivable from a foreign customer that is payable in the customer's local currency. on december 31, 2023, brief correctly included this receivable for 390,000 local currency units (lcu) in its balance sheet at $275,000. when brief collected the receivable on february 15, 2024, the u.s. dollar equivalent was $285,700. in brief's 2024 consolidated income statement, how much should it report as a foreign exchange gain?

Answer 1

Brief Inc. should report a foreign exchange gain of $10,700 in its 2024 consolidated income statement, calculated by subtracting the original value in USD from the USD value at the time of collection.

Step-by-step explanation:

In the scenario involving Brief Inc.'s foreign customer receivable, the foreign exchange gain of $10,700 can be explained by changes in the exchange rate between the local currency and the U.S. dollar. The company initially recorded the receivable at $275,000 on December 31, 2023, based on the exchange rate at that time. However, when Brief Inc. actually collected the receivable on February 15, 2024, the exchange rate had shifted, resulting in a higher U.S. dollar value for the amount collected.

The calculation of the foreign exchange gain is the difference between the U.S. dollar value at the time of collection and the initial recorded value in the balance sheet:

\[ \text{Foreign Exchange Gain} = \$285,700 (\text{value at collection}) - \$275,000 (\text{value in the balance sheet}) = \$10,700. \]

This gain of $10,700 reflects the favorable movement in the exchange rate for Brief Inc. The increase in the U.S. dollar value of the collected amount compared to the recorded value is recognized as a foreign exchange gain in the consolidated income statement for the year 2024. It's essential for companies engaged in international transactions to be aware of and account for foreign exchange gains or losses to accurately reflect their financial performance.