17. Mint Corporation has several transactions with foreign entities. Each transa

Question

17. Mint Corporation has several transactions with foreign entities. Each transaction is denominated in the local currency unit of the country in which the foreign entity is located. On November 2, 20X8, Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08. The account has not been settled as of December 31, 20X8, when the exchange rate has increased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:

A. $460 loss B. $387 loss C. $387 gain D. $460 gain

Explanation / Answer

D.$460 gain.

total foregin exchange exposure * (closing rate - initial rate)

=>LCU 23,000 *($1.10 -$1.08)

=>$460 gain.

gain since the closing rate is greater than initial rate.

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