Question

On April 1, 2017, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2018. The dollar value of the loan was as follows: Date Amount April 1, 2017 $ 97,000 December 31, 2017 103,000 April 1, 2018 105,000 How much foreign exchange gain or loss should be included in Shannon’s 2017 income statement?

Answer 1

Foreign exchange loss of $6000

Step-by-step explanation:

The dollar loan should recognized in the balance of Shanon Company as $97,000 on 1 April 2017,at end of the year the loan amount should e revalued to reflect its current fair value.

At end of the year 2017,the dollar value of the loan has risen to $103,000,hence the obligation being owed has increased by $6,000($103,000-$97000),hence the increase in value of debt should be credited to loan account and debited to Shanon's 2017 income statement