_____ On 10/5/06, a domestic importer acquired inventory from a German firm for 100,000 euros. On that date, the direct exchange rate was $.80. At 12/31/06, the direct exchange rate was $.84. On 1/10/07, when the direct exchange rate was $.85, the domestic importer made full payment of 100,000 euros. In the importer's 2006 financial statements, what should be reported as an FX gain or loss?

Question

Quizplus · Accepted Answer

The importer would report a $4,000 loss in their 2006 financial statements. This is because the value of the euro increased from $.80 (when the inventory was acquired) to $.84 (by the end of the year), meaning it would cost $4,000 more in USD to settle the liability of 100,000 euros at the year-end exchange rate.

_____ on 10/5/06, a Domestic Importer Acquired Inventory from a German