Pigskin Co., a U. S. corporation, sold inventory on credit to a British company on April 8, 2018. Pigskin received payment of 35,000 British pounds on May 8, 2018. The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May 8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar)

Question

Business

Lucian Hawkins

14 March, 06:02

Pigskin Co., a U. S. corporation, sold inventory on credit to a British company on April 8, 2018. Pigskin received payment of 35,000 British pounds on May 8, 2018. The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May 8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar)

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Answers (1)

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Bruno Rangel · Answer 1

Loss of $3850 should be recognized.

Explanation:

Given:

Payment received on April 8,2018 = 35,000 British pounds

The exchange rate on April 8, £1 = $1.54

The exchange rate on May 8, 2018, £1 = $1.43

Now,

The value of payment received on April 8, 2018 in Dollars

= Exchange rates on April 8, 2018 * Payment received

on substituting the respective values, we get

= $1.54 * 35,000 = $53,900

Also,

The value of payment received on May 8, 2018 in Dollars

= Exchange rates on May 8, 2018 * Payment received

on substituting the respective values, we get

= $1.43 * 35,000 = $50,050

Since, the value received on May 8, 2018 is less than the value in Dollars on the date of the sale, a loss should be recognized in the amount of the foreign exchange.

Now,

the amount of loss

= Value in Dollars on April 8, 2018 - Value in Dollars on May 8, 2018

on substituting the respective values, we get

the amount of loss = $53,900 - $50,050 = $3850