Foreign Currency Transaction Impact on Financial Statements

Medium Multinational Operations Foreign Currency Transactions

A company based in the United States, ABC Corp., sold goods to a customer in the Eurozone and agreed to receive payment in euros. The transaction took place on June 1 when the exchange rate was 1 USD = 0.85 EUR. The goods were sold for €100,000. However, before ABC Corp. received the payment on June 30, the exchange rate changed to 1 USD = 0.80 EUR.

As part of their financial reporting for the fiscal quarter ending June 30, ABC Corp. needs to record the foreign currency transaction. Which of the following statements correctly reflects the financial implications of this foreign currency transaction?

ABC Corp. should recognize a gain on foreign exchange because the euro appreciated against the dollar.

ABC Corp. should recognize a loss on foreign exchange because the euro depreciated against the dollar.

ABC Corp. will not recognize any foreign exchange gain or loss since the transaction was originally recorded at the exchange rate on the date of the transaction.

Hint

Submitted4.8K

Correct3.4K

% Correct71%