On July 1, 2020, CANCO purchased inventory from its main U.S. supplier, RNB Enterprises, at a cost of US$12,000. CANCO's year end is on July 31. Payment of US$12,000 for the inventory is due on August 31, 2020. Some important dates regarding this transaction, as well as the exchange rates in effect at each of these dates are shown below:
$$\begin{array} { | l | l | l }
\hline \text { Trarsaction date: July } 1,2020 : & \text { 1 U.S. Dollar } = \text { CDN } 1.370 \
\hline\text { Year end July } 31,2020 : & \text { 1 U.S. Dollar } = \text { CDN } \$ 1.345 \
\hline \text { Setternent date: August } 31,2020 : & \text { 1 U.S. Dollar } = \text { CDN } \$ 1.325 \
\hline
\end{array}$$ What would be the amount of the foreign exchange gain or loss recorded for the year end, July 31, 2020?
A) A CDN$300 exchange loss.
B) A CDN$540 exchange gain.
C) A CDN$300 exchange gain.
D) Nil. Any exchange gain or loss is deferred until settlement.

Question

On July 1, 2020, CANCO purchased inventory from its main U.S. supplier, RNB Enterprises, at a cost of US$12,000. CANCO's year end is on July 31. Payment of US$12,000 for the inventory is due on August 31, 2020. Some important dates regarding this transaction, as well as the exchange rates in effect at each of these dates are shown below:
$$\begin{array} { | l | l | l } 
\hline \text { Trarsaction date: July } 1,2020 : & \text { 1 U.S. Dollar } = \text { CDN } 1.370 \
\hline\text { Year end July } 31,2020 : & \text { 1 U.S. Dollar } = \text { CDN } \$ 1.345 \
\hline \text { Setternent date: August } 31,2020 : & \text { 1 U.S. Dollar } = \text { CDN } \$ 1.325 \
\hline
\end{array}$$ What would be the amount of the foreign exchange gain or loss recorded for the year end, July 31, 2020?
A) A CDN$300 exchange loss.
B) A CDN$540 exchange gain.
C) A CDN$300 exchange gain.
D) Nil. Any exchange gain or loss is deferred until settlement.

Quizplus · Accepted Answer

The foreign exchange gain for the year end, July 31, 2020, is calculated based on the difference in the exchange rate from the transaction date to the year-end date. The inventory was purchased at an exchange rate of 1.370 USD/CAD, and the rate at year-end was 1.345 USD/CAD. The calculation is as follows: (1.370 - 1.345) * US$12,000 = CDN$300. This represents a foreign exchange gain because the Canadian dollar strengthened against the U.S. dollar, reducing the cost of the payable in Canadian dollars.

On July 1, 2020, CANCO Purchased Inventory from Its Main