On November 1 a French company purchased machinery from an American company for 800,000 euros when the exchange rate was $.83. When preparing financial statements on December 31 when the rate for the euros was $.88, what amount of gain or loss should the American company report?

Question

Quizplus · Accepted Answer

The American company initially recorded the sale at 800,000 euros * $0.83 = $664,000. By December 31, the value of the euros increased to 800,000 euros * $0.88 = $704,000. The difference of $704,000 - $664,000 = $40,000 represents a gain due to the increase in the exchange rate.

On November 1 a French Company Purchased Machinery from an American