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Foreign Currency Transaction - Interest-Bearing Note

On July 1, 2009, Houghton Company borrowed 200,000 euros from a foreign lender evidenced by an interest-bearing note due on July 1, 2010. The note is denominated in euros. The U.S. dollar equivalent of the note principal is as follows:

Date Amount
July 1, 2009 (date borrowed) $195,000
Dec 31, 2009 (Houghton's year end) 220,000
July 1, 2010 (date repaid) 230,000

In its 2010 income statement, what amount should Houghton include as a foreign exchange gain or loss on the note?

a) $35,000 gain
b) $35,000 loss
c) $10,000 gain
d) $10,000 loss

Solution Preview

On July 1, 2009, Houghton Company borrowed 200,000 euros from a foreign lender evidenced by an interest-bearing note due on July 1, 2010. The note is denominated in euros. The U.S. dollar equivalent of the note principal is as follows:

Date ...

Solution Summary

This solution identifies the correct amount Houghton needs to include as a foreign exchange gain or loss and justifies why.

$2.19