Assume that on January 15, 2020, Ariel agrees to purchase US$500,000 for C$550,000 for delivery on January 15, 2021. The exchange rate at its December 31 year-end is US$1 = C$0.95 and the January 15, 2021 the exchange rate is US$1 = C$0.97. What is the foreign exchange gain or loss recognized on January 15, 2020?
A)0
B)$65,000 loss.
C)$75,000 gain.
D)$75,000 loss.

Question

Quizplus · Accepted Answer

On January 15, 2020, the transaction is agreed upon but not yet executed, so there is no foreign exchange gain or loss to be recognized on that date. The gain or loss would only be recognized at the time of settlement or at the reporting date if the transaction is still outstanding, neither of which applies to the scenario described for January 15, 2020.

Assume That on January 15, 2020, Ariel Agrees to Purchase