Question 1: Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2004. Pigskin received payment of 35,000 British pounds on May 8, 2004. The exchange rate was $1 = £0.65 on April 8 and $1 = £0.70 on May 8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar)
A) $10,500 loss
B) $10,500 gain
C) $1,750 loss
D) $3,846 loss
E) No gain or loss should be recognized.
Question 2: Mills Inc. had a receivable from a foreign customer that is payable in the local currency of the customer (stickles). On December 31, 2003, this receivable for §200,000 was correctly included in Mills' balance sheet at $132,000. When the receivable was collected on February 15, 2001, the U.S. dollar equivalent was $144,000. In Mills' 2004 consolidated income statement, how much should have been reported as a foreign exchange gain?
A) $ -0-
B) $36,000
C) $48,000
D) $10,000
E) $12,000