Answer:
$18,000 gain
Explanation:
Calculation for the amount of foreign currency gain or loss that should be recognized in income on December 31, year 2
Since Forward rate was given as:
December 18, year 2 $1.25
December 31, year 2 $1.31
Which means we have to Deduct the forward rate of December 18, year 2 which is $1.25 from the forward rate of December 31, year 2 which is $1.31 and then multiply it by the amount in which forward rate was purchased which is 300,000 Euro which will in turn give us the amount of foreign currency gain that should be recognized in income on December 31, year 2
Now let calculate
Forward rate December 18, year 2 $1.25
Less Forward rate December 31, year 2 $1.31
=$0.06 gain per Euro
Now let calculate for the amount of foreign currency gain that should be recognized in income on December 31, year 2
Hence,
Forward rate purchased amount 300,000 Euro ×$0.06 gain per Euro
=$18,000 gain
Therefore the amount of foreign currency gain that should be recognized in income on December 31, year 2 will be $18,000 gain.
