Mint Corporation has several transactions with foreign entities.Each transaction is denominated in the local currency unit of the country in which the foreign entity is located.On November 2,20X8,Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08.The account has not been settled as of December 31,20X8,when the exchange rate has increased to 1 LCU = $1.10.The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:
A)$460 loss
B)$387 loss
C)$387 gain
D)$460 gain

Question

Quizplus · Accepted Answer

The foreign exchange gain is calculated based on the difference in exchange rates from the time of sale to the year-end. Initially, the value of the sale in USD is 23,000 LCU * $1.08 = $24,840. By year-end, the value in USD is 23,000 LCU * $1.10 = $25,300. The difference, $25,300 - $24,840, equals a $460 gain.

Mint Corporation Has Several Transactions with Foreign Entities