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Benjamin, Inc., operates an export/import business. The company has considerable dealings with companies in the country...

Benjamin, Inc., operates an export/import business. The company has considerable dealings with companies in the country of Camerrand. The denomination of all transactions with these companies is alaries (AL), the Camerrand currency. During 2017, Benjamin acquires 20,000 widgets at a price of 8 alaries per widget. It will pay for them when it sells them. Currency exchange rates for 1 AL are as follows: September 1, 2017 $0.46 December 1, 2017 0.44 December 31, 2017 0.48 March 1, 2018 0.45 Assume that Benjamin acquired the widgets on December 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018? Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on December 1, 2017. What is the effect of the exchange rate fluctuations on reported income in 2017? Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018?

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Expert Solution

Widgets 20000
Price 8 AL / Widgets
Currency Exchange Rates
1-Sep-17 1 AL $0.46
1-Dec-17 1 AL $0.44
31-Dec-17 1 AL $0.48
1-Mar-18 1 AL $0.45
IF 1 Dec 2017 Buy and 1 March 2018 payment
Purchase cost 8*.44*20000 $        70,400
Payable $ 70,400
Treatment on 31 Dec 8*.48*20000 $        76,800
Unrealized Exchange Loss in 2017 76800 - 70400 $          6,400
Payment 8*.45*20000 $        72,000
Exchange Gain 72000-76800 $          4,800
Net Exchange Loss in 2018 $ 6400 - $ 4800 $          1,600
IF 1 Sec 2017 Buy and 1 Dec 2017 payment
Purchase cost 8*.46*20000 $        73,600
Payable $ 73,600
Payment 8*.44*20000 $        70,400
Exchange Gain in 2017 73600-70400 $          3,200
IF 1 Sec 2017 Buy and 1 Mar 2018 payment
Purchase cost 8*.46*20000 $        73,600
Payable $ 73,600
Treatment on 31 Dec 8*.48*20000 $        76,800
Unrealized Exchange Loss in 2017 76800 - 73600 $          3,200
Payment 8*.45*20000 $        72,000
Exchange Gain 72000-76800 $          4,800
Net Exchange Gain in 2018 $ 4800 -$ 3200 $          1,600

ekkarill92 answered 1 year ago
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