Kreighton Manufacturing Purchased on Credit £50,000 Worth of Production Materials

Multiple Choice

Kreighton Manufacturing purchased on credit £50,000 worth of production materials from a British company when the exchange rate was $1.97 per British pound. At the year-end balance sheet date, the exchange rate increased to $2.76. If the liability is still unpaid at that time, Kreighton must record a:

A) gain of $138,000.
B) loss of $138,000.
C) neither a gain nor loss.
D) loss of $39,500.
E) gain of $39,500.