On January 1st, 2014 ABC Inc.had invoiced a client in New York for $10,000 US for services rendered that day.ABC did not hedge this receivable.The receivable is due in 60 days.On January 1st, 2014, the spot rate was $1US = $1.02CDN.On January 31st, 2014, the spot rate was $1US = $1.05CDN.What is the effect of the above information on ABC's January financial statements?
A)A $300 debit to OCI.
B)A $300 foreign exchange loss.
C)A $300 credit to OCI.
D)A $300 foreign exchange gain.

Question

Quizplus · Accepted Answer

The increase in the spot rate from $1.02CDN to $1.05CDN results in a foreign exchange gain for ABC Inc. when converting the $10,000 US receivable to Canadian dollars, as the Canadian dollar value of the receivable has increased by $300.