Assume that Ariel agrees to purchase US$500,000 for C$550,000 on January 15,2013.The exchange rate at year end is US$1=C$0.95 and the January 15,2017 exchange rate is US$1=C$0.97.What journal entry is required when the contract is initiated?
A)0
B)$65,000 loss.
C)$75,000 gain.
D)$75,000 loss.

Question

Quizplus · Accepted Answer

When the contract is initiated, no gain or loss is recognized. The transaction is recorded at the agreed exchange rate, and any gain or loss is recognized only when the contract is settled or at year-end if the financial statements are prepared.

Assume That Ariel Agrees to Purchase US$500,000 for C$550,000 on January