Question

Matthias Corp. had the following foreign currency transactions during 2017: Purchased merchandise from a foreign supplier on January 20 for the U.S. dollar equivalent of $59,300 and paid the invoice on April 20 at the U.S. dollar equivalent of $51,200. On September 1, borrowed the U.S. dollar equivalent of $308,000 evidenced by a note that is payable in the lender's local currency in one year. On December 31, the U.S. dollar equivalent of the principal amount was $321,000. In Matthias's 2017 income statement, what amount should be included as a net foreign exchange gain or loss?

Answer 1

Answer
Purchase transaction
purchase price	$          59,300
settlement amount	$          51,200
Gain/(loss)	$            8,100
Notes payable
borrowed amount	$        308,000
fair value on dec 31	$        321,000
Gain/(loss)	$        (13,000)
so we report	a net foreign exchange loss			$    4,900
The merchandise purchase results in a foreign exchange gain of $8,100, the difference between the U.S. dollar equivalent at the date of purchase and at the date of settlement. The increase in the dollar equivalent of the note’s principal results in a foreign exchange loss of $13,000. The net foreign exchange loss is $4,900 ($8,100 gain - $13,000 loss).