Question

On December 20, 2017, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign customer at a price of 90,000 ostras. Payment is received on January 10, 2018. Currency exchange rates for 1 ostra are as follows: December 20, 2017 December 31, 2017 January 10, 2018 $ 1.12 1.09 1.05 a. How does the fluctuation in exchange rates affect Butanta's 2017 income statement? b. How does the fluctuation in exchange rates affect Butanta's 2018 income statement? a. The ostra receivable exchange The ostra receivable exchange in dollar value, resulting in a foreign in 2017 in dollar value, resulting in a foreign of in 2018

Answer 1

Date of transaction	20/12/2017
Date of receipt of payment	10/1/2018
Year end	31/12/2017

Answer to Part A
Transaction amount in Dollar terms as on date of transaction (90000*1.12)	$     100,800
Transaction amount in Dollar terms as on Year end 31/12/2017 (90000*1.09)	$        98,100
Decrease in asset (100800 - 98100)	$          2,700
Decrease in asset means foreign exchange loss
The ostra receivable DECREASES in dollar value, resulting in a foreign exchange LOSS of $ 2,700 in 2017

Answer to Part B
Transaction amount in Dollar terms as on Year end 31/12/2017 (90000*1.09)	$        98,100
Transaction amount in Dollar terms as on date of receipt of payment 10/1/2018 (90000*1.05)	$        94,500
Decrease in asset (98100 - 94500)	$          3,600
Decrease in asset means foreign exchange loss
The ostra receivable DECREASES in dollar value, resulting in a foreign exchange LOSS of $ 3,600 in 2018