Exact Instruments sold equipment to a British research group at a price of 70,000 British pounds on December 1,2017 with payment due in 90 days.Using the following exchange rates,what gain or loss from currency fluctuations should be recognized in 2017 and 2018,respectively?

Question

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To calculate gain or loss due to currency fluctuations, we need to compare the exchange rate on the date of sale (December 1, 2017) with the exchange rate on the date of payment (February 28, 2018).

Exchange rate on December 1, 2017: $1 = £0.75
Exchange rate on February 28, 2018: $1 = £0.70

To calculate the gain/loss in 2017, we need to convert the sale amount of £70,000 to US dollars using the exchange rate on December 1, 2017:

£70,000 x $1.33 per £ = $93,100

To calculate the gain/loss in 2018, we need to convert the same amount (£70,000) to US dollars using the exchange rate on February 28, 2018:

£70,000 x $1.43 per £ = $100,100

Therefore, the gain/loss from currency fluctuations is the difference between the two amounts:

$100,100 - $93,100 = $7,000 gain

Thus, there is a $2,800 gain in 2017 (when the sale was recorded) and a $3,500 loss in 2018 (when payment was received). The correct answer is C.

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