Aquila Inc.'s Foreign Currency Transactions

Very Hard Multinational Operations Foreign Currency Transactions

Aquila Inc. is an American multinational company that conducts part of its operations in Europe. The company sells its products in Europe and denominates these sales in euros. At the end of the fiscal year, Aquila Inc. has outstanding receivables from European customers that total €1,500,000. The exchange rate at the beginning of the year was 1.10 USD/EUR, and at the end of the year, it changed to 1.25 USD/EUR.

For financial reporting purposes, Aquila Inc. is required to recognize the revenue from these sales based on the exchange rate at the transaction date. However, for year-end financial reporting, Aquila must also evaluate how to report the receivables in terms of USD.

Based on this information, which of the following statements accurately reflects the impact of these foreign currency transactions on Aquila Inc.'s financial statements?

Aquila Inc. will recognize revenue of $1,650,000 and report the receivables at $1,875,000.

Aquila Inc. will recognize revenue of $1,650,000 and report the receivables at $1,500,000.

Aquila Inc. will recognize revenue of $1,500,000 and report the receivables at $1,875,000.

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