Answered: Date December 1, 2017 December 31, 2017…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Use the following information for Problems 11 and 12.
MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply:
MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706.
Assuming that MNC did not enter into a forward contract, how much foreign exchange gain or loss should it report on its 2017 income statement with regard to this transaction?
a. $5,000 gain
b. $3,000 gain
c. $2,000 loss
d. $1,000 loss

Date
December 1, 2017
December 31, 2017
March 31, 2018
Spot Rate
$0.0035
0.0033
0.0038
Forward Rate
(to March 31, 2018)
$0.0034
0.0032
N/A

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