Question

1. On November 16, 2019, a U.S. company makes a sale to a customer in Germany. Under the sale terms, the customer will pay the company €100,000 on March 16. On November 16, the company also enters a forward contract to sell €100,000 on March 16, 2020. On March 16, the company receives €100,000 from the customer and sells it using the forward contract. The company's accounting year ends December 31. Rates on the dates specified appear below: Spot Rate Forward Rate for March 16, 2020 Delivery November 16, 2019 $ 1.250 $ 1.248 December 31, 2019 1.260 1.255 March 16, 2020 1.265 1.265 2. At what amount will the company report sales revenue on its 2019 income statement? A. $125,000 B. $125,500 C. $124,800 D. $126,000

Answer 1

Answer:

$125,000

Explanation:

Given the following resorted data from the question:  

                                          Spot Rate                   Forward Rate for

                                                                          March 16, 2020 Delivery

November 16, 2019             $1.250                               $ 1.248

December 31, 2019               1.260                                 1.255

March 16, 2020                    1.265                                  1.265

The applicable rate to use to calculate the amount the company will report sales revenue on its 2019 income statement is the spot rate ruling on the date the company made the sale to the customer in Germany, i.e. $1.250 on November 16, 2019.

Therefore, we have:

Sales revenue = €100,000 * $1.250 = $125,000.

Therefore, the amount the company will report sales revenue on its 2019 income statement is $125,000.