On January 1,20x4,HB Inc.issued 10,000,000 Euros (€)of bonds payable.The bonds are due on December 31,20X6.Over the life of the bonds,the exchange rates were as follows:

Assume that exchange gains and losses on long-term monetary are recognized in income immediately.What is the exchange gain (loss)recognized in income during 20X5?

Question

On January 1,20x4,HB Inc.issued 10,000,000 Euros (€)of bonds payable.The bonds are due on December 31,20X6.Over the life of the bonds,the exchange rates were as follows:

Assume that exchange gains and losses on long-term monetary are recognized in income immediately.What is the exchange gain (loss)recognized in income during 20X5?

Quizplus · Accepted Answer

To calculate the exchange gain (loss) recognized in income during 20X5, we need to find the difference between the exchange rate at the end of 20X5 (1.20) and the exchange rate at the issuance date (1.25). The difference is 0.05. The bonds are denominated in Euros, so we convert this difference to Euros by multiplying it by the face value of the bonds: 0.05 x 10,000,000 = 500,000. Since exchange gains and losses are recognized in income immediately, the recognized exchange loss in income during 20X5 is €500,000, which is equal to approximately $595,238 (using the given exchange rate of 1.19). Therefore, the correct answer is B.