Larson Company, a U.S.company, has an India rupee account receivable resulting from an export sale on September 7 to a customer in India.Larson signed a forward contract on September 7 to sell rupees and designated it as a cash flow hedge of a recognized receivable.The spot rate was $.023, and the forward rate was $.021.Which of the following did the U.S.exporter report in net income?
A) Discount revenue.
B) Premium revenue.
C) Discount expense.
D) Premium expense.
E) Both discount revenue and premium expense.

Question

Quizplus · Accepted Answer

The U.S. exporter would report a discount expense in net income because the forward rate ($.021) is lower than the spot rate ($.023), indicating that the future cash inflow will be less valuable than the present value. This difference represents a cost to the U.S. exporter, which is recognized as a discount expense in net income.