Barter Corp.sold American telecommunications equipment to a British company for 650,000 pounds.On the sale date,the exchange rate was $1.65 per British pound,but when Barter received payment from its customer,the exchange rate was $1.60 per pound.When the foreign receivable was collected,Barter Enterprises:

Question

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Since the exchange rate decreased from $1.65 per pound to $1.60 per pound, Barter Enterprises will receive less dollars when converting the pounds to dollars than they would have on the sale date. Therefore, they will have a loss on the fluctuation of foreign currency. The amount of the loss is the difference in the exchange rate multiplied by the amount of the receivable in pounds:

650,000 pounds x ($1.60 - $1.65) = 650,000 pounds x -$0.05 = -$32,500

Therefore, Barter Enterprises will debit Loss on Fluctuation of Foreign Currency for $32,500 when the foreign receivable is collected.