You have recently been hired as a consultant for Solar Power Distributors. Solar Power Distributors manufactures and ships solar panels to several international clients with invoices denominated in the customers local currency. In the past two years Solar Power has been unable to meet Wall Street estimates in large part due to swings in foreign currency exchange rates causing significant losses to be recorded on their income statement. Solar Power has hired you to examine its previous two years of financial statements and provide insight on whether its current accounting is correct and to offer potential solutions.

Required

Write a memo to Solar Power Distributors addressing the following:

Is it correct for foreign currency exchange losses be reported on the income statement? Provide support for your answer using the FASB Codification.

If so, suggest an accounting strategy for how Solar Power can avoid unexpected currency exchange losses in the future. You must be specific and you must justify your recommendation. If you decide to use any outside resources, please make sure to properly cite any resources you use to answer this question.