Benjamin, Inc., operates an export/import business. The company has considerable dealings with companies in the country of Camerrand. The denomination of all transactions with these companies is alaries (AL), the Camerrand currency. During 2017, 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, 2017 $0.46 December 1, 2017 0.44 December 31, 2017 0.48 March 1, 2018 0.45 Assume that Benjamin acquired the widgets on December 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018

2017 = ($6,400)

2018 = $4,800

Explanation:

The effect of the exchange rate fluctuations on reported income in 2017 and in 2018 is shown below:-

Particulars                               Amount

Purchased widgets                 20,000

Purchased price                       8

Total inventory                        160,000

(20,000 × 8)

Total inventory at Dec 1,2017 $70,400

(160,000 × $0.44)

Total inventory at Dec 31,2017 $76,800

(160,000 × $0.48)

Foreign exchange gain/(loss)

at reporting date                    ($6,400)

($70,400  - $76,800)

Total inventory at March 1, 2018 $72,000

(160,000 × $0.45)

Foreign exchange gain/(loss)

when payment is made

on March 1, 2018                         $4,800

($76,800  - $72,000 )

So, the Foreign exchange loss in 2017 is ($6,400) and the Foreign exchange gain in 2018 is $4,800

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