On april 1, 2017, shannon company, a u. s. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due april 1, 2018. the dollar value of the loan was as follows:
date amount
april 1. 2010 $97,000
december 31, 2010 $103,000
april 1. 2011 $105,000
how much foreign exchange gain or loss should be included in shannon's 2011 income statement?
(a) $1,000 gain.
(b) $1,000 loss.
(c) $2,000 gain.
(d) $2,000 loss.
(e) $8,000 loss.

(D) $2,000 loss.

Explanation:

Shannon has taken a loan, the value of the loan is a liability for Shannon, an increase in the loan will represent more dollars to settle the debt. This increase in the loan to 105,000 from 103,000 translate to a loss of 2,000

as the company now needs 2,000 more dollars to settle the debt.

The acounting entry will be as follow:

loss on foreing exchange   2,000  debit

     note payable                                   2,000  credit

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