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 July 15?
A) $1875 loss
B) $ 750 loss
C) $1125 loss
D) $ 750 gain
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 July 15?
A) $1875 loss
B) $ 750 loss
C) $1125 loss
D) $ 750 gain
E) gain or loss is deferred

Quizplus · Accepted Answer

The relevant exchange rate on June 1 is 1 £ = $1.50, and on July 15 it is 1 £ = $1.48. Therefore, there is a decrease in the value of the pound, resulting in a foreign exchange loss for Lewis International. The loss is calculated as follows: £75,000 / 1.5 (rate on June 1) = $100,000, and £75,000 / 1.48 (rate on July 15) = $101,125. The difference between the two is $1,125, which represents the foreign exchange loss that Lewis International will recognize on July 15.

Assume That Lewis International Sells Running Shoes to a British