Question

U.S. company buys inventory from a supplier in Canada and pays for the inventory in Canadian dollars (C$). The inventory is converted to U.S. dollars on the U.S. company's balance sheet using what $/C$ exchange rate?

Select one:

A. The rate when the inventory was paid for

B. The rate when the inventory was delivered

C. The rate at the balance sheet date

D. The rate when the inventory is sold

Answer 1

Answer:

A. The rate when the inventory was paid for

Explanation:

The U.S. company should register the inventory purchase in their balance sheet using the $/C$ exchange rate at that date the inventory was paid for since that would represent the actual monetary value spent on inventory. The rate is subject to change and, therefore, using the exchange rate at the time of delivery, sale or at the balance sheet date, could incorrectly represent the company's inventory expenses.