Lindy, a US corporation, bought inventory items from a supplier in Argentina on

Question

Lindy, a US corporation, bought inventory items from a supplier in Argentina on November 5, year 1, for 100,000 Argentine pesos, when the spot rate was $.4295. At Lindy’s December 31, year 1 year-end, the spot rate was $.4245. On January 15, year 2, Lindy bought 100,000 pesos at the spot rate of $.4345 and paid the invoice. How much should Lindy report as part of net income for year 1 and year 2 as foreign exchange transaction gain or loss?

Year 1 Year 2 A. $ 500 $(1,000) B. $0 $ (500) C. $ (500) $0 D. $(1,000) $ 500 E. $500 $0

Explanation / Answer

Year 1 = ( 0.4295 - 0.4245) * 100000

= $ 500

Year 2 = ( 0.4245 - 0.4345) * 100000

= $ (1000)

Conclusion :- Option A is the right answer. i.e., $ 500, $ (1000).

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