Exact Instruments sold equipment to a British research group at a price of 70,000 British pounds on December 1,2014 with payment due in 90 days.Using the following exchange rates,what gain or loss from currency fluctuations should be recognized in 2014 and 2015,respectively?

Question

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To calculate the gain or loss, we need to determine the exchange rate at which the payment is made. Using the given exchange rates, we can find that the payment due date is February 28, 2015.

On December 1, 2014, the exchange rate is $1.56 per pound (70,000 pounds x $1.56/pound = $109,200).

On February 28, 2015, the exchange rate is $1.50 per pound (70,000 pounds x $1.50/pound = $105,000).

Therefore, Exact Instruments will receive $105,000 on February 28, 2015, which is a gain of $4,200.

The gain should be recognized in 2014 because it relates to the transaction that occurred in 2014. Therefore, the answer is a $2,800 gain in 2014 (70,000 pounds x ($1.50/pound - $1.56/pound) = $2,800 gain).

In 2015, there is a loss of $3,500 because the exchange rate changed unfavorably for Exact Instruments (70,000 pounds x ($1.56/pound - $1.50/pound) = $3,500 loss).

Exact Instruments Sold Equipment to a British Research Group at a Price