Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars

Question

Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$) on January 1, 20X9, with settlement to be in 60 days. On the same date, Alman entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were: January 1 (1 C$ = $0945); March 1 (1C$ = $0.930). Based on the preceding information, the entry to revalue foreign currency payable to current U.S. dollar value on March 1 will have:

A. a credit to Foreign Currency Transaction Gain for $1,500.

B. a debit to Foreign Currency Transaction Loss for $2,500.

C. a debit to Foreign Currency Transaction Loss for $1,500.

D. a credit to Foreign Currency Transaction Gain for $1,000.

Explanation / Answer

D. a credit to Foreign Currency Transaction Gain for $1,000

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