Winston Corp

question 78

Multiple Choice

Winston Corp., a U.S. company, had the following foreign currency transactions during 2011:
(1.) Purchased merchandise from a foreign supplier on July 16, 2011 for the U.S. dollar equivalent of $47,000 and paid the invoice on August 3, 2011 at the U.S. dollar equivalent of $54,000.
(2.) On October 15, 2011 borrowed the U.S. dollar equivalent of $315,000 evidenced by a non-interest-bearing note payable in euros on October 15, 2011. The U.S. dollar equivalent of the note amount was $295,000 on December 31, 2011, and $299,000 on October 15, 2012.
-What amount should be included as a foreign exchange gain or loss from the two transactions for 2012?

• A) $1,000 loss.
• B) $1,000 gain.
• C) $2,000 loss.
• D) $4,000 gain.
• E) $4,000 loss.

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Definitions:

Firm's Equity

The value of a company owned by its shareholders, representing the residual assets of the company after debts have been subtracted.

Dealer Markets

Markets where dealers buy and sell securities for their own accounts at their own risk.

OTC Market

The Over-the-Counter (OTC) market refers to decentralized trading of securities, such as stocks and bonds, not conducted on a formal exchange.

TSX

Stands for the Toronto Stock Exchange, which is the largest stock exchange in Canada and the third largest in North America.