During 2014, a U.S. company purchased inventory from a foreign supplier. The tra

Question

During 2014, a U.S. company purchased inventory from a foreign supplier. The transaction was denominated in the local currency of the seller. The direct exchange rate increased from the date of the transaction to the balance sheet date. The exchange rate decreased from the balance sheet date to the settlement date in 2015. For the years 2014 and 2015, transaction gains or losses should be recognized as:

A - 2014-gain; 2015-gain

B - 2014-gain; 2015-loss

C - 2014-loss; 2015-loss

D - 2014-loss; 2015-gain

Explanation / Answer

Since direct exchange rate increased in 2014, there is loss in 2014.

Since direct exchange rate decreased in 2015, there is gain in 2014.

Hence, answer is option D

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