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

Since the exchange rate increased from £1.66 per British pound to $1.69, this actually means that the pound weakened against the dollar. Therefore, Sanuk would incur a loss rather than a gain. The loss can be calculated as follows:

£20,000 at £1.66 per pound = $33,200 
£20,000 at £1.69 per pound = $33,800 
Loss = $33,200 - $33,800 = -$600

Therefore, Sanuk must record a loss of $600 rather than a gain.

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