Big Wheel Co. is a U.S. corporation, with a December 31, 2011 year-end. It purch
ID: 2590789 • Letter: B
Question
Big Wheel Co. is a U.S. corporation, with a December 31, 2011 year-end. It purchased inventory on November 1, 2011, with payment of 55454000 yen to be made as soon as Big Wheel had sold the inventory. The inventory was sold on January 30, 2012, and payment was made on February 1, 2012. The spot rates for yen were as follows:
Nov. 1, 2011 $1.00 = 90.95770 Yen
Dec. 30, 2011 $1.00 = 92.24010 Yen
Jan. 28, 2012 $1.00 = 89.48690 Yen
Feb. 1, 2012 $1.00 = 90.27790 Yen
What was the effect of exchange rate fluctuations on net income for 2012? (NOTE: Do not use $-sign in your answer. If it is a gain, use a positive number. If it is a loss, use a - sign before the number.)
Explanation / Answer
Solution The Given Quotes are Indirect quotes for US so We have to convert them into direct Quotes Nov 1st IDQ= $1 =90.95770 DQ= 1/IDQ 0.010994 The Amount of $ to be paid 609668 A The Inventory sold on Jan 30 2012 but Payment was Received on Feb 1st Hence Feb 1St Rate is Rellavant Given IDQ= $1=90.27790 DQ= 0.011077 The amount received 614259 B Exchange Fluctuations Profit= B-A 4591
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