On January 1, Year 1, ABC purchased $1,200,000 USD worth of bonds for $1,150,000, which are accounted as FVTPL investments. On that date, $1 US was worth $1.20 CDN. ABC Inc. reports its results in Canadian dollars. On December 31^st, Year 1, the bonds were trading for $1,120,000 USD and $1 US was worth $1.25 CDN. Based on the information provided, which of the following choices best describes the entry(ies) required by ABC Inc. on December 31^st, Year 1, the company's year-end? Choice 1:
Investment in DEF Bonds 20,000
Foreign Exchange Gain 20,000
Choice 2:
Foreign Exchange Loss 20,000
Investment in DEF Bonds 20,000
Choice 3:
Investment in DEF Bonds 20,000
Investment Revenue - Unrealized Holding Gain 17,000
Foreign Exchange Gain 3,000
Choice 4:
Investment in DEF Bonds 20,000
Foreign Exchange Loss 3,000
Investment Revenue - Unrealized Holding Gain 23,000

Question

Quizplus · Accepted Answer

The investment value decreased by $30,000 USD ($1,150,000 - $1,120,000). In CDN, this is a $37,500 loss ($30,000 * $1.25). The exchange rate change from $1.20 to $1.25 results in a $3,000 gain on the original $1,150,000 investment. The net effect is a $20,000 CDN increase in the investment value.

On January 1, Year 1, ABC Purchased $1,200,000 USD Worth