_____ Paltex's foreign subsidiary reported depreciation expense for 2007 of 250,000 LCUs (100,000 LCUs pertain to equipment acquired in 2007, when the exchange rate was $1 = 8 LCUs, and 150,000 LCUs pertain to equipment acquired in 2007, when the exchange rate was $1 = 6 LCUs). For 2007, the average exchange rate was $1 = 5 LCUs, and the year-end exchange rate was $1 = 4 LCUs. If the U.S. dollar is the functional currency, what amount should be reported for depreciation expense in dollars?
A) $37,500
B) $50,000
C) $1,250,000
D) $1,700,000
E) None of the above.

Question

Quizplus · Accepted Answer

The depreciation expense for the equipment acquired in 2007 should be translated at the historical exchange rate of $1 = 8 LCUs, which results in $12,500 (100,000 LCUs / 8 LCUs). The depreciation expense for the equipment acquired in 2007 should be translated at the historical exchange rate of $1 = 6 LCUs, which results in $25,000 (150,000 LCUs / 6 LCUs). The total depreciation expense for 2007 is $37,500 ($12,500 + $25,000).

_____ Paltex's Foreign Subsidiary Reported Depreciation Expense for 2007 of 250,000