Question

Let’s suppose you (USA dealer) imported a product from German on Dec 1, 2018 at € 300, payable in 60 days. You sold the product in the US market at $400 in cash on Dec 15, 2018. The company's fiscal year ends on Dec 31. You paid to your German supplier on Feb 1, 2019. Below, please find the exchange rate information: Dec 1, 2018: 1.2 €/$. Dec 31, 2018: 0.6 €/$. Feb 1, 2019: 1.0 €/$. What was gross profit for 2018 and 2019, respectively?

Answer 1

- $140, -$120.

Step-by-step explanation:

Okay, we are given the following parameters in the question above;

The value of the product imported from German on Dec 1, 2018 = € 300, payable = 60 days, the value of the product in the US market = $400 in cash on Dec 15, 2018 and the exchange rate are; Dec 1, 2018: 1.2 €/$, Dec 31, 2018: 0.6 €/$, Feb 1, 2019: 1.0 €/$.

Therefore, in the year 2018 we have that;

Purchase cost = €300 × 1.2 = $360.

Sales = $400.

Thus, the exchange loss = (1.2 - 0.6) × 300 = $180.

Therefore, the net income = sales - purchase cost - exchange loss.

The net income = $(400 - 360 - 180) = - $140.

Also, In the year 2019 we have that;

Exchange gain = (0.6 - 1) × 300 = -120.

Therefore, net income = -$120