Question

Assume that our company incurs a Euro-denominated payable when the exchange rate is $1.20:€1 and that the $US weakens to $1.27:€1 before the payable is paid. Group of answer choices a.Our company will recognize the loss on its next reporting date. b.Our company will not recognize the loss until the payable is paid. c.Our company will not recognize the gain until the payable is paid. d.Our company will recognize the gain on its next reporting date.

Answer 1

Answer:

Our company will recognize the loss on its next statement date.

Explanation:

The exchange rate between two currencies is the rate at which one can be exchanged for the other during trade.

The stronger a currency the less of it will be involved in the exchange, while the weaker the currency the more of it will be required in the exchange.

In this instance the transaction is Euro based. When the payable was incured the rate was $1.2 to €1.

Now the rate has increased to $1,27 per €1. This implies that the company will lose 1.20 - 1.27= -$0.07 per every Euro.

This loss will be recorded on the next statement date.