Santa Barbara Company, a U.S. company, purchased merchandise on account from a company in England. The price was 1300 British pounds. At the time of the purchase, the exchange rate for a British pound was $1.54. At the time Santa Barbara Company paid for the merchandise, the exchange rate for a British pound was $1.58. What is the amount of the gain or loss recorded by the Santa Barbara Company upon payment?

Question

Quizplus · Accepted Answer

The company initially recorded the payable at $1.54 per pound, totaling $2,002 (1300 x 1.54). Upon payment, the exchange rate was $1.58, totaling $2,054 (1300 x 1.58). The difference of $52 ($2,054 - $2,002) is a loss.