_____ 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 using the foreign currency unit of measure approach?
A) $50,000
B) $52,000
C) $60,000
D) $62,000
E) $72,000

Question

Quizplus · Accepted Answer

Under the foreign currency unit of measure approach (also known as the temporal method), non-monetary assets such as land are translated at historical exchange rates. The land was acquired for 100,000 LCUs when the exchange rate was $.60, so its cost in dollars at acquisition was 100,000 LCUs * $.60 = $60,000. Inflation does not affect the translation because the historical rate is used, not the current rate or adjusted for inflation. Therefore, the translated amount remains $60,000, not any of the provided options directly. However, given the options and the context of the question, it seems there might be a misunderstanding in the question's presentation or a mistake in the calculation explanation based on the provided choices. The correct approach with the given data would result in $60,000, but this is not an option. Re-evaluating the options and the premise, if we consider the current exchange rate at $.52 for a revaluation or a different interpretation, 100,000 LCUs * $.52 = $52,000, which aligns with option B, assuming the question intended for a current value translation at the year-end rate, which contradicts the initial explanation. This suggests a possible error in the question setup or answer options.

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