Rochester Limited purchased cameras from a Japanese company at a price of 4 million yen. On the purchase date, the exchange rate was $0.0100 per Japanese yen, but when Rochester Limited, paid the liability, the exchange rate was $0.0103 per yen. When this foreign account payable was paid, Rochester Limited, recorded a:

Question

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Rochester Limited purchased cameras from a Japanese company at a price of 4 million yen. At the time of purchase, the exchange rate was $0.0100 per yen. Therefore, the cost of the cameras in US dollars would be:

4,000,000 yen * $0.0100/yen = $40,000

However, when the liability was paid, the exchange rate had changed to $0.0103 per yen. Therefore, the actual cost of the cameras in US dollars would be:

4,000,000 yen * $0.0103/yen = $41,200

This means that Rochester Limited incurred a loss of $1,200 ($41,200 - $40,000) due to the change in exchange rate. Therefore, the correct answer is B: Loss of $1,200.

Rochester Limited Purchased Cameras from a Japanese Company at a Price