On November 1, 20X8, Denver Company borrowed 500,000 local currency units (LCU)
ID: 2395557 • Letter: O
Question
On November 1, 20X8, Denver Company borrowed 500,000 local currency units (LCU) from a foreign lender evidenced by an interest-bearing note due on November 1, 20X9, which is denominated in the currency of the lender. The U.S. dollar equivalent of the note principal was as follows:
In its income statement for 20X9, what amount should Denver include as a foreign exchange gain or loss on the note principal?
Multiple Choice
$15,000 gain
$25,000 gain
$15,000 loss
$40,000 loss
7/1/X8 (date borrowed) $ 100,000 12/31/X8 (Denver’s year-end) 125,000 7/1/X9 (date repaid) 140,000Explanation / Answer
Solution:
US Dollar on Date of borrowing = $100,000
US Dollar on 31 December = $140,000
US dolar on Date repaid = $140,000
Total Loss to be recognized would be = $140,000 - $100,000 = $40,000
Loss recognized om December 31, 20X8 = $125,000 - $100,000 = $25,000
Hence loss to be recognized in 2019 income sttaement = Total Loss - Loss recognized earler on Dec 31 = $40,000 - $25,000 = $15000 loss
Hence third option$15,000 Loss" is correct.
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