Hayden,Inc.purchased knobs from a Greek company for 185,000 Euros.On the purchase date the exchange rate was $0.80 per Euro,but when Hayden paid the liability,the exchange rate was $0.70 per Euro.When this foreign account payable was paid,Hayden,Inc.,recorded a:

Question

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Hayden, Inc. purchased goods using Euros as the functional currency. When the exchange rate fluctuates, a gain or loss arises from the translation of foreign currency financial statements. In this case, the exchange rate has decreased from $0.80 to $0.70 per Euro, which means the US dollar is now stronger against the Euro.

To determine the gain or loss, we need to calculate the difference between the amount paid in dollars at the time of purchase and the amount paid at the time of payment.

Amount paid at the time of purchase: 185,000 Euros x $0.80 per Euro = $148,000
Amount paid at the time of payment: 185,000 Euros x $0.70 per Euro = $129,500

The difference is a gain of $18,500. Therefore, the correct answer is D, a gain of $18,500.