Sanuk purchased on credit -20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound. At the year-end balance sheet date the exchange rate increased to $1.69. Sanuk must record a gain of $600.

Question

Quizplus · Accepted Answer

If the exchange rate increased from $1.66 to $1.69, then the US dollar has weakened relative to the British pound. Therefore, Sanuk would actually record a loss rather than a gain on their accounts payable balance. The loss would be $600/0.03 = £20.000 x (1.69-1.66) = $600.

Sanuk Purchased on Credit -20,000 Worth of Parts from a British