| Foreign Exchange Transaction - Operating Income
On October 1, 2001, Mud Co., a U.S. company, purchased parts from Terra, a Portuguese company, with payment due on December 1, 2001. If Mud’s 2001 operating income include no foreign exchange gain or loss, the transaction could have
a Resulted in an extraordinary gain
b Been denominated in the U.S. currency
c Caused a foreign exchange gain to be reported as a deferred charge on the balance sheet
d Caused a foreign exchange gain to be reported as a separate component of stockholders’ equity
e Caused a foreign exchange gain to be reported as an accrual on the balance sheet
I choose (b) if there is no foreign exchange gain or loss then the functional currency stayed in the U.S. and therefore the currency was denominated in the US. Is there someone out there that can confirm that I am right or not in giving this as my answer. and if not what is the correct answer. Thanks!
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