Final Answer:
a. Fluctuation in the exchange rate affects Momeier's 2023 income statement by potentially creating a foreign exchange gain or loss.
b. The fluctuation in the exchange rate impacts Momeier's 2024 income statement through the recognition of a foreign exchange gain or loss upon receipt of payment in USD.
Step-by-step explanation:
The fluctuation in the exchange rate impacts Momeier's 2023 income statement due to the revaluation of the accounts receivable denominated in rials. If the USD appreciates against the rial between the sale and year-end, there would be a foreign exchange gain, increasing the reported income. Conversely, if the USD depreciates, it would result in a loss, decreasing the reported income.
In 2024, the actual receipt of payment in USD would trigger another impact. If the USD strengthens further against the rial, Momeier would experience a foreign exchange gain. However, if the USD weakens, it would incur a foreign exchange loss when converting the received USD to dollars based on the new exchange rate.
Complete question:
On December 20, 2023, Momeier Company (a U.S.-based company) sold parts to a foreign customer at a price of 145,000 rials. Payment is received on January 10, 2024. Currency exchange rates are as follows:
- A) 1 USD = 30 rials on December 20, 2023
- B) 1 USD = 35 rials on January 10, 2024
- C) 1 USD = 25 rials on December 20, 2023
- D) 1 USD = 40 rials on January 10, 2024
a. How does the fluctuation in the U.S. dollar per rial exchange rate affect Momeier's 2023 income statement?
b. How does the fluctuation in the U.S. dollar per rial exchange rate affect Momeier's 2024 income statement?