An American company makes a credit purchase of goods from a company in London for 1,000 British pounds.On the date of purchase,the exchange rate was $1.65 per pound.However,on the date of payment,the rate had declined to $1.60 per pound.As a result,the American company would record
A)an exchange gain of $50.
B)an exchange loss of $1,600.
C)an exchange loss of $50.
D)no exchange gain or loss.

Question

Quizplus · Accepted Answer

The American company would record an exchange gain of $50 because on the date of purchase, the cost was 1,000 pounds * $1.65/pound = $1,650. On the date of payment, with the rate at $1.60/pound, the cost would be 1,000 pounds * $1.60/pound = $1,600. The difference ($1,650 - $1,600) is a $50 gain.

An American Company Makes a Credit Purchase of Goods from a Company