MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply: Date Spot Rate Forward rate ( to march 31, 2018 ) December 1, 2017 $0.0035 $0.0034 December 31, 2017 0.0033 0.0032 March 31, 2018 0.0038 N/A MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706. Assuming that MNC did not enter into a forward contract, how much foreign exchange gain or loss should it report on its 2017 income statement with regard to this transaction? Choose the correct.a. $5,000 gainb. $3,000 gainc. $2,000 lossd. $1,000 loss
MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply: Date Spot Rate Forward rate ( to march 31, 2018 ) December 1, 2017 $0.0035 $0.0034 December 31, 2017 0.0033 0.0032 March 31, 2018 0.0038 N/A MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706. Assuming that MNC did not enter into a forward contract, how much foreign exchange gain or loss should it report on its 2017 income statement with regard to this transaction? Choose the correct.a. $5,000 gainb. $3,000 gainc. $2,000 lossd. $1,000 loss
Chapter9: Taxation Of International Transactions
Section: Chapter Questions
Problem 27P
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Question
MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply:
| Date | Spot Rate |
Forward rate ( to march 31, 2018 ) |
| December 1, 2017 | $0.0035 | $0.0034 |
| December 31, 2017 | 0.0033 | 0.0032 |
| March 31, 2018 | 0.0038 | N/A |
MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706.
Assuming that MNC did not enter into a forward contract, how much foreign exchange gain or loss should it report on its 2017 income statement with regard to this transaction? Choose the correct.
a. $5,000 gain
b. $3,000 gain
c. $2,000 loss
d. $1,000 loss
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