Impact of Currency Exchange Rates on Revenue Recognition

Medium Multinational Operations Foreign Currency Transactions

ABC Corporation, a U.S. company, sells machinery to a Mexican company for 1,000,000 pesos. At the time of the transaction, the exchange rate is 20 pesos per dollar. ABC Corporation sells the machinery on December 1, 2023, and recognizes the revenue in its financial statements. However, the payment is made on February 1, 2024, when the exchange rate is 22 pesos per dollar.

What is the impact on ABC Corporation's income statement for the month of February 2024, assuming ABC uses the temporal method for foreign currency transactions?

ABC Corporation will report a gain of $10,000 on its income statement.

ABC Corporation will report a loss of $10,000 on its income statement.

ABC Corporation will have no impact on its income statement for February 2024.

Hint

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