What amount of foreign exchange gain or loss should be reflected in Ouyang's 20X1 consolidated net income? Ouyang, Inc

Finance Mar 12, 2021

What amount of foreign exchange gain or loss should be reflected in Ouyang's 20X1 consolidated net income?

Ouyang, Inc.'s Chinese subsidiary borrowed 800,000 euros on Jun 1, 20X1. Exchange rates in 20X1 between the Chinese (Yuan) and euro (C) and between the U.S. dollar ($) and Yuan are as follows:
Yuan per US$ per C Yuan
1-Jun 2.40 $0.46 Average for the year 2.5 0.42 31-Dec 2.6 0.48

Expert Solution

Computation of Foreign exchange gain (Loss) reflected in consolidated net income:

Amount borrowed = 800,000 euros

Value in BRL = 800,000 * (2.60 - 2.40) = 160,000

Foreign exchange gain (Loss) reflected in consolidated net income

= 160,000 * Average 0.42

= $67,200 loss

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