On December 1, 2013, Rollings Ltd. sold goods to Federer Ltd., a company located in Switzerland for 500,000 Swiss francs (CHF). At the date of sale, the spot rate was CHF1 = $1.0329. On the same date, Rollings acquired a 90-day forward contract at a rate of CHF1 = $1.0315. On March 1, 2014, Rollings receives full payment from Federer and delivered the Swiss francs in execution of the forward contract. The spot rate at March 1, 2014 was CHF1 = $1.0287. What amount should Rollings record for the sale?

Question

Quizplus · Accepted Answer

Rollings should record the sale based on the forward contract rate since it acquired a forward contract to hedge against the foreign currency risk. The forward contract rate is CHF1 = $1.0315. Therefore, the sale amount in USD is 500,000 CHF * $1.0315/CHF = $516,450.