On December 1, 2017, Smith Company delivered a shipment of goods to a Danish customer for a price of 160,000 euros. If on that date 1.3 U.S. dollars could be exchanged for 1 euro. If Smith closes its books on December 31 and 1 U.S. dollar is trading for 1 euro at that time, the adjusting entry that Smith would record would include:

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Based on the information given, Smith Company sold goods for 160,000 euros on December 1, when the exchange rate was 1.3 dollars per euro, meaning they recognized revenue of $208,000 (160,000 x 1.3). However, by December 31, the exchange rate had changed to 1:1, meaning the value of the euros received had decreased. To adjust for this, Smith would need to record an exchange rate loss, as they now expect to receive less dollars for the same amount of euros. The amount of the loss would be the difference between the originally recognized revenue and the new, lower value of the euros, or $48,000 (160,000 - 160,000). Therefore, the adjusting entry would be a debit to Exchange Rate Loss for $48,000.

On December 1, 2017, Smith Company Delivered a Shipment of Goods