Reporting Transactions Denominated in Foreign Currencies Downfield Corporation is U.S.-based and has substantial sales in the countries of Toyland and Barkland.

Downfield’s international sales are denominated in the currency of the country of the purchaser, and payment is received 120 days after delivery of the product. Explain your answers to each of the following:

a. Should Downfield Corporation record sales revenue at the time the products are delivered to its international customers or when payment is received?

b. During the last year, Downfield recorded a rather large foreign currency exchange gain on its accounts receivable from customers in the country of Toyland. Did the value of the currency of Toyland increase or decrease against the U.S. dollar during the year?

c. Although substantial sales were made in Barkland during the year and its currency decreased in value against the U.S. dollar, Downfield did not report a foreign currency exchange loss in its income statement for the year because it had hedged its receivable balances.

1. What type of transaction did Downfield enter into to hedge its receivables?

Does the fact that Downfield hedged its receivables mean that it did not record a loss on the value of its receivables?

3. How did entering into a hedge transaction permit Downfield to avoid reporting a loss?

i)