Assume a U.S.company purchases equipment from a German supplier for €37,500 when the exchange rate at the time of the transaction is $1.5 per euro,or €0.667 per dollar.The U.S.company doesn't have to pay the German supplier until the end of the month,at which time the euro is now worth only $1.49 per euro or €0.671 per dollar.According to U.S.GAAP,the equipment would be valued at ________.

Question

Quizplus · Accepted Answer

According to U.S. GAAP, the equipment should be valued at the exchange rate prevailing at the date of the transaction, which is $1.5 per euro. Therefore, the cost of the equipment in dollars would be:
37,500 euros × $1.5/euro = $56,250

The fact that the exchange rate has changed by the end of the month and the euro is now worth only $1.49 per euro is not relevant for the valuation of the equipment under U.S. GAAP.