On November 2, 2019, When the Spot Rate Is $0 $\quad$

Short Answer

On November 2, 2019, when the spot rate is $0.12/HK$, a company takes delivery of merchandise priced at HK$1,000,000 from a supplier in Hong Kong. The spot rate is $0.125 on December 31, the company's year-end. Payment of HK$1,000,000 is made to the supplier on February 1, 2020, when the spot rate is $0.122. What is the effect of exchange gains and losses on 2019 and 2020 income?
$\quad$$\quad$$\begin{array}{llcc}& \underline{ 2019 } & &&&&&&& \underline {2020 } \\\end{array}$

A) $\begin{array}{lrr}\$ 5,000 \text { exchange loss } & \$ 3,000 \text { exchange gain }\end{array}$
B) $\begin{array}{lrr}\$ 5,000 \text { exchange gain } &\$ 3,000 \text { exchange loss }\end{array}$
C) $\begin{array}{lrr}\text { No effect }&&&&&& \$ 2,000 \text { exchange loss}\end{array}$
D) $\begin{array}{lrr}\text { No effect }&&&&&& \$ 2,000 \text { exchange gain}\end{array}$