Question

Turbo Corporation (a U.S.-based company) acquired merchandise on account from a foreign supplier on November 1, 2017, for 100,000 markkas. It paid the foreign currency account payable on January 17, 2018. The following exchange rates for 1 markka are known November 1, 2017 December 31, 2017 January 15, 2018 S 0.754 0.742 0.747 a. How does the fluctuation in exchange rates affect Turbo's 2017 income statement? b. How does the fluctuation in exchange rates affect Turbo's 2018 income statement? in the dollar value of the markka payable is recorded as foreign exchange L 2017 in the d ar value of the marka payable is recorded as foreign exchange in 2018

Answer 1

Date of transaction	1/11/2017
Date of Payment	17/1/2018
Year end	31/12/2017

Answer to Part A
Transaction amount in Dollar terms as on date of transaction (100000*0.754)	$        75,400
Transaction amount in Dollar terms as on Year end 31/12/2017 (100000*0.742)	$        74,200
Decrease in Liability (75400 - 74200)	$          1,200
Decrease in liability means foreign exchange gain
The DECREASE in the dollar value of the markka payable is recorded as $ 1,200 foreign exchange GAIN in 2017

Answer to Part B
Transaction amount in Dollar terms as on Year end 31/12/2017 (100000*0.742)	$        74,200
Transaction amount in Dollar terms as on date of payment 17/1/2018 (100000*0.747)	$        74,700
Increase in Liability (74200 - 74700)	$           (500)
Increase in liability means foreign exchange loss
The INCREASE in the dollar value of the markka payable is recorded as $ 500 foreign exchange LOSS in 2018