Question

On October 1, 20X4, Mild Co., a U.S. company, purchased machinery from Grund, a German company, with payment due on April 1, 20X5. If Mild's 20X4 operating income included no foreign exchange transaction gain or loss, then the transaction could have:

a. Caused a foreign currency gain to be reported as a contra account against machinery.

b. Caused a foreign currency translation gain to be reported as a component of other comprehensive income in stockholders' equity.

c. Resulted in an extraordinary gain.

d. Been denominated in U.S. dollars.

Answer 1

Option D is correct

Step-by-step explanation:

Since the monetary mode of operation is in dollars and foreign exchange gains and losses are naturally included in order to calculate the net income which is determined by rise and fall of exchange rate.

Answer 2

d. Been denominated in U.S. dollars.

Step-by-step explanation:

If Mild's 20X4 operating income included no foreign exchange transaction gain or loss, then the transaction could have been denominated in U.S dollars.

Furthermore, if it was denominated in U.S. dollars, there is no foreign exchange gain or loss for Mild.

Hence, there would be a gain or loss for Grund.