Advanced Accounting

Exercise 2 - The accounting issues associated with foreign currency transactions.

Assume that a U.S. company has made three purchases of inventory from three different foreign vendors. One of the purchases is denominated in U.S. dollars, and the other two purchases are denominated in foreign currency, FC-A and FC-B, respectively. Furthermore, between the time of the purchase and payment to the vendor, the U.S. dollar has strengthened relative to FC-A and weakened relative to FC-B.

Discuss how exchange rate changes would impact each of the three purchases.