Company XYZ operates internationally and regularly engages in foreign currency transactions. During the fiscal year, XYZ recorded a sale of goods to a customer in the Eurozone, invoiced at €100,000. The exchange rates for the transactions are as follows: Exchange rate on the transaction date: 1 EUR = 1.10 USD Exchange rate on the reporting date: 1 EUR = 1.15 USD How should Company XYZ recognize the gain or loss related to this foreign currency transaction in its financial statements?

Exam

CFA Level 2

Section

Difficulty

Financial Reporting and Analysis

Accounting for Foreign Currency Transaction Gains

Hard Multinational Operations Foreign Currency Transactions

Company XYZ operates internationally and regularly engages in foreign currency transactions. During the fiscal year, XYZ recorded a sale of goods to a customer in the Eurozone, invoiced at €100,000. The exchange rates for the transactions are as follows:

Exchange rate on the transaction date: 1 EUR = 1.10 USD
Exchange rate on the reporting date: 1 EUR = 1.15 USD

How should Company XYZ recognize the gain or loss related to this foreign currency transaction in its financial statements?

Report a foreign currency gain of $5,000 in the income statement.

Report a foreign currency loss of $5,000 in the income statement.

No foreign currency gain or loss is recognized as it is a sale transaction.

Hint

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