Assume that Lewis International sells running shoes to a British importer on June 1 and that the sale is denominated at £75,000 and will be collected on July 15. Assume the treatment of FASB Statement 52 and that no forward contract is entered into. Also assume that Lewis closes its books at the end of each month. The following are the relevant exchange rates.
$ \begin{array}{ll}\text { Spot rate on June 1 } & \$ 1.6200 \ \text { Forward rate for July } & \ 15 \text { delivery } & \$ 1.6000 \ \text { Spot rate on June 30 } & \$ 1.6100 \ \text { Spot rate on July 15 } & \$ 1.5950\end{array} $
-What is the amount of the foreign exchange gain or loss that it will recognize on June 30?
A) $1500 loss
B) $ 750 loss
C) $1125 loss
D) $1875 loss
E) gain or loss is deferred

Question

Assume that Lewis International sells running shoes to a British importer on June 1 and that the sale is denominated at £75,000 and will be collected on July 15. Assume the treatment of FASB Statement 52 and that no forward contract is entered into. Also assume that Lewis closes its books at the end of each month. The following are the relevant exchange rates. 
$ \begin{array}{ll}\text { Spot rate on June 1 } & \$ 1.6200 \ \text { Forward rate for July } & \ 15 \text { delivery } & \$ 1.6000 \ \text { Spot rate on June 30 } & \$ 1.6100 \ \text { Spot rate on July 15 } & \$ 1.5950\end{array} $
-What is the amount of the foreign exchange gain or loss that it will recognize on June 30?
A) $1500 loss
B) $ 750 loss
C) $1125 loss
D) $1875 loss
E) gain or loss is deferred

Quizplus · Accepted Answer

The foreign exchange loss on June 30 is calculated based on the change in the spot rate from the date of the sale (June 1) to the end of the month (June 30). The spot rate changed from $1.6200 to $1.6100. The loss is calculated as (£75,000 * $1.6200) - (£75,000 * $1.6100) = $121,500 - $120,750 = $750 loss.

Assume That Lewis International Sells Running Shoes to a British