Sagnik B.

asked • 07/07/15

Advanced Financial Accounting Question Need Help Today

Gunther Co. established a subsidiary in Mexico on January 1, 2011. The subsidiary engaged in the following transactions during 2011:

January 1 : Sold common stock to Gunther for 5,000,000 pesos . Purchased inventory throughout the year, 8,000,000 pesos (1/4 remained at year end). Sales for year totaled 12,000,000 pesos.
Dec 31 : Purchased equipment for 1,000,000 pesos

Gunther concluded that the subsidiary's functional currency was the dollar. Exchange rates for 2011 were:
Jan 1 : 1 peso = $.20
Jan 31 : 1 peso = $.19
Dec 31 : 1 peso = $.16
Weighted Average For Year = 1 peso = $.18

Question :
What amount of foreign exchange gain or loss would have been recognized in Gunther's consolidated income statement for 2011?
A. $800,000 gain.
B. $760,000 gain.
C. $320,000 loss.
D. $280,000 loss.
E. $440,000 loss.
I need detailed help with steps on how to solve and get correct answer of D

1 Expert Answer


Greg C. answered • 08/21/15

New to Wyzant

Accounting and Auditing Expert

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