Assume that Aero agrees to purchase US$50,000 for C$52,000 on January 15,2013.The exchange rate at year end is US$1 = C$0.98 and the January 15,2013 exchange rate is US$1 = C$0.97.What journal entry is required at Jan 15,2013?
A)$500 loss.
B)$500 gain.
C)$3,500 loss.
D)$3,500 gain.

Question

Quizplus · Accepted Answer

The exchange rate on January 15, 2013, is US$1 = C$0.97. Aero agrees to purchase US$50,000 for C$52,000, which implies an exchange rate of C$52,000/US$50,000 = C$1.04 per US$. The difference between the agreed rate (C$1.04) and the market rate (C$0.97) results in a loss of C$0.07 per US$, totaling a loss of C$3,500 (US$50,000 * C$0.07). However, since the question asks for the journal entry on January 15, 2013, the immediate recognition of the loss is C$500, which is the difference between the agreed rate and the market rate at the time of the transaction.

Assume That Aero Agrees to Purchase US$50,000 for C$52,000 on January