Reference no: EM133104613
Question - XYZ Corp. has a calendar year end. On January 1, 2019, the company borrowed $5,000,000 U.S. dollars from an American Bank. The loan is to be repaid on December 31, 2022 and requires interest at 5% to be paid every December 31. The loan and applicable interest are both to be repaid in U.S. dollars. XYZ does not hedge to minimize its foreign exchange risk.
The following exchange rates were in effect throughout the term of the loan:
January 1, 2019 US $1 = CDN $1.1500
December 31, 2019 US $1 = CDN $1.1490
December 31, 2020 US $1 = CDN $1.1485
December 31, 2021 US $1 = CDN $1.1483
December 31, 2022 US $1 = CDN $1.1487
The average rates in effect for 2019 and 2020 were as follows:
2019: US $1 = CDN $1.1493
2020: US $1 = CDN $1.1487
Required - What is the amount of foreign exchange gain or loss recognized on the 2020 Income Statement as a result of revaluing the loan payable?
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