Effect of Foreign Currency Fluctuations on Earnings
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Benjamin, Inc. operates an export/import business. The company has considerable dealings with companies in the country of Camerrand. The denomination of all transaction with these companies is alaries (AL), the camerrand currency. During 2011, Benjamin acquires 20,000 widgets at a price of 8 alaries per widget. It will pay for them when it sells them. Currency exchange rates for 1 AL are as follows:
Setember 1, 2011 .46
December 1, 2011 .44
December 31, 2011 .48
March 1, 2012 .45
A. Assume that Benjamin acquired the widgets on December 1, 2011, and made payment on March 1, 2012. What is the effect of the exchange rate fluctuations on reported income in 2011 and in 2012?
B. Assume that Benjamin acquired the widgets on September 1, 2011, and made payments on December 1, 2011. What is the effect of the exchange rate fluctuations on reported income in 2011?
C. Assume that Benjamin Acquired the widgets on September 1, 2011, and made payments on March 1, 2012. What is the effect of the exchange rate fluctuations on reported income in 2011 and in 2012?
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Benjamin, Inc. operates an export/import business. The company has considerable dealings with companies in the country of Camerrand. The denomination of all transaction with these companies is alaries (AL), the Camerrand currency. During 2011, Benjamin acquires 20,000 widgets at a price of 8 alaries per widget. It will pay for them when it sells them. Currency exchange rates for 1 AL are as follows:
September 1, 2011 .46
December 1, 2011 .44
December 31, 2011 .48
March 1, 2012 .45
A. Assume that Benjamin acquired the widgets on December 1, 2011, and made payment on March 1, 2012. What is the effect of the exchange rate fluctuations on reported income in 2011 and in 2012?
B. Assume that Benjamin acquired the widgets on September 1, 2011, and made payments on December 1, 2011. What is the effect of the exchange rate fluctuations on reported income in 2011?
C. Assume that Benjamin acquired the widgets on September 1, 2011, and made payments on March 1, 2012. What is the effect of the exchange rate fluctuations on reported income in 2011 and in 2012?
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SFAS 52 requires that the purchaser of goods or services record the related payable at the exchange rate in effect on the rate of the purchase. The debt is revalued at the end of the year, with the unrealized gain or loss taken into income. The debt is revalued when it is settled.
A. Assume that Benjamin acquired the widgets on December 1, 2011, and made payment on March 1, 2012. What is the effect of the exchange rate fluctuations on reported income in 2011 and in 2012?
In this case, Benjamin would record a payable of 20,000 widgets*8 alaries per widget*$.44 ...
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