_____ On 1/1/06, a foreign unit of a domestic company acquired a parcel of land at a cost of 100,000 LCUs. During 2006, the inflation rate in the foreign country was 20%. The direct exchange rate was $.60 on 1/1/06 and $.52 on 12/31/06. At what amount would the land be expressed in dollars in the 12/31/06 translated balance sheet under the temporal method of translation?
A) $50,000
B) $52,000
C) $60,000
D) $62,000
E) $72,000

Question

Quizplus · Accepted Answer

Under the temporal method, non-monetary assets acquired at historical costs are translated at the historical exchange rate. Since the land was acquired for 100,000 LCUs on 1/1/06 and the exchange rate was $.60 on that date, the translated cost is 100,000 LCUs * $.60/LCU = $60,000. Inflation does not affect the translation under the temporal method for assets recorded at historical cost.

_____ on 1/1/06, a Foreign Unit of a Domestic Company