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 the knobs for 185,000 euros, which was worth $148,000 (185,000 x 0.80). When Hayden paid the liability, the exchange rate had decreased to $0.70 per euro, which means that the euro was worth less in dollars. Therefore, Hayden paid less dollars ($129,500 or 185,000 x 0.70) to settle the liability compared to what they initially recorded as the liability ($148,000).
This difference represents a gain for Hayden, Inc. of $18,500, which should be recorded as a credit to the Foreign Exchange Gain/Loss account. Therefore, the correct answer is D.