Why Must the Two-Transaction Approach Be Used for Recording Foreign

question 35

Multiple Choice

Why must the two-transaction approach be used for recording foreign currency transactions under U.S.GAAP?

• A)The two-transaction approach is required under IFRS.
• B)U)S.GAAP requires conservatism in financial reporting.
• C)All other methods are excessively complicated to use and therefore obscure the essence of the transaction.
• D)Management made two decisions: one to sell and another to extend credit in a foreign currency.

---

Definitions:

Interest Rate

The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Short-term Investments

Assets intended to be converted into cash or sold within a year.

Current Ratio

A financial metric that measures a company's ability to pay off its short-term liabilities with its short-term assets.

Liquidity

The ease with which an asset or security can be converted into ready cash without affecting its market price.