Question - Thomas Co. purchased merchandise from a vendor in England on November 20, 20x1, for 500,000 British pounds. Payment was due in British pounds on January 20, 20x2. The spot rates to purchase 1 pound were as follows.
November 20, 20x1 $1.25
December 31, 20x1 $1.20
January 20, 20x2 $1.17
How should the foreign currency transaction gain be reported on Thomas's financial statements at December 31, 20x1?
A gain of $40,000 as a separate component of stockholders' equity
A gain of $40,000 in the income statement
A gain of $25,000 as a separate component of stockholders' equity
A gain of $25,000 in the income statement