Question

On December 20, 2015, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign customer at a price of 185,000 ostras. Payment is received on January 10, 2016. Currency exchange rates for 1 ostra are as follows:

December 20, 2015 $ 1.28

December 31, 2015 1.25

January 10, 2016 1.21



a.)How does the fluctuation in exchange rates affect Butanta’s 2015 income statement?


The Ostra receivable decreases in dollar value resulting in a foreign exchange loss of _____ in 2015


b.)How does the fluctuation in exchange rates affect Butanta’s 2016 income statement?


The Ostra receivable decreases in dollar value resulting in a foreign exchange loss of ______ in 2016

Answer 1

The computation is shown below:

Step-by-step explanation:

a) The fluctuation in the exchange rate is

On December 20, it is

= 185,000 × $1.28

= $236,800

On December 31, it is

= 185,000 ×$1.25

= $231,250

So it results a foreign exchange loss of $5,550 in 2015 by taking a difference between the two amounts as shown above

So it shows a decrease in value in 2015

b) The fluctuation in the exchange rate is

On December 31, it is

= 185,000 ×$1.25

= $231,250

On January 10, it is

= 185,000 ×$1.21

= $223,850

So it results a foreign exchange loss of $7,400 in 2016 by taking a difference between the two amounts as shown above which reflects an additional foreign exchange loss

So it shows a decrease in value in 2016