Question

Hunt Co. purchased merchandise for 300,000 British pounds from a vendor in London on November 30, 20X1. Payment in British pounds was due on January 30, 20X2. The exchange rates to purchase one pound were as follows:11/30/X1 12/31/X1---------- ----------Spot-rate $1.65 $1.6230-day rate 1.64 1.5960-day rate 1.63 1.56In its December 31, 20X1, income statement, what amount should Hunt report as foreign exchange gain?A. $12,000B. $9,000C. $6,000D. $0

Answer 1

Answer:

$ 9,000

Explanation:

Data provided;

Cost of the merchandise purchased = 300,000 British pounds

Spot exchange for 1 British pound on date of purchase = $ 1.65

Spot exchange for 1 British pound on date of statement = $ 1.62

Therefore,

The net foreign exchange gain per British pound = ($ 1.65 - $ 1.62) = $ 0.03

Hence,

the net foreign exchange gain on the cost of merchandise purchased

= Cost of the merchandise purchased × net foreign exchange gain per British pound

= 300,000 × $ 0.03

or

= $ 9000