On May 8, 2013, Jett Company (a U.S. company) made a credit sale to Lopez (a Mexican company). The terms of the sale required Lopez to pay 610,000 pesos on February 10, 2014. Jett prepares quarterly financial statements on March 31, June 30, September 30, and December 31. The exchange rates for pesos during the time the receivable is outstanding follow.
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| May 8, 2013 | $ | 0.1873 |
| June 30, 2013 | | 0.1882 |
| September 30, 2013 | | 0.1893 |
| December 31, 2013 | | 0.1876 |
| February 10, 2014 | | 0.1915 |
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Compute the foreign exchange gain or loss that Jett should report on each of its quarterly income statements for the last three quarters of 2013 and the first quarter of 2014.
Compute the amount to be reported on Jett's balance sheets at the end of each of its last three quarters of 2013.
Explanation:
| Quarter ended June 30, 2013 | | | |
| May 8 recorded amount (610,000 × $0.1873) | $ | 114,253 | |
| June 30 balance sheet amount (610,000 × $0.1882) | | 114,802 | |
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| Foreign exchange gain | $ | 549 | |
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| Quarter ended September 30, 2013 | | | |
| June 30 balance sheet amount | $ | 114,802 | |
| Sept. 30 balance sheet amount (610,000 × $0.1893) | | 115,473 | |
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| Foreign exchange gain | $ | 671 | |
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| Quarter ended December 31, 2013 | | | |
| Sept. 30 balance sheet amount | $ | 115,473 | |
| Dec. 31 balance sheet amount (610,000 × $0.1876) | | 114,436 | |
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| Foreign exchange loss | $ | 1,037 | |
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| Quarter ended March 31, 2014 | | | |
| Dec. 31 balance sheet amount | $ | 114,436 | |
| Feb. 10, 2014, amount received (610,000 × $0.1915) | | 116,815 | |
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| Foreign exchange gain | $ | 2,379 | |
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| Note — The combined net gain for all four quarters equals: |
| $2,562 ($549 + $671 − $1,037 + $2,379). |
This amount also equals the difference between the number of dollars finally received ($116,815) and the initial measure of the account receivable ($114,253). In addition, this amount equals the number of pesos (610,000) owed by the customer times the change in the exchange rate ($0.0042) between the beginning rate ($0.1873) and the ending rate ($0.1915).
