A U.S.company's foreign subsidiary had the following amounts in stickles (§), the functional currency, in 2018: The average exchange rate during 2018 was §1 = $.96.The beginning inventory was acquired when the exchange rate was §1 = $1.20.The ending inventory was acquired when the exchange rate was §1 = $.90.The exchange rate at December 31, 2018 was §1 = $.84.At what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2018 U.S.dollar income statement?
A) $11,253,600.
B) $11,577,600.
C) $11,520,000.
D) $11,613,600.
E) $11,523,600.

Question

A U.S.company's foreign subsidiary had the following amounts in stickles (§), the functional currency, in 2018:  The average exchange rate during 2018 was §1 = $.96.The beginning inventory was acquired when the exchange rate was §1 = $1.20.The ending inventory was acquired when the exchange rate was §1 = $.90.The exchange rate at December 31, 2018 was §1 = $.84.At what amount should the foreign subsidiary's cost of goods sold have been reflected in the 2018 U.S.dollar income statement?
A) $11,253,600. 
B) $11,577,600. 
C) $11,520,000. 
D) $11,613,600. 
E) $11,523,600.

Quizplus · Accepted Answer

The functional currency of the foreign subsidiary is the stickle (§).
The inventory purchased at the beginning of 2018 should be translated to the USD using the exchange rate at the date of acquisition, which is §1 = $1.20, so 
Beginning inventory = 70,000,000/1.2 = $58,333,333.33
The ending inventory should also be translated to the USD using the exchange rate at the date of acquisition, which is §1 = $0.90, so
Ending inventory = 75,000,000/0.9 = $83,333,333.33
The cost of goods sold (COGS) can be calculated as follows:
COGS = beginning inventory + purchases - ending inventory
where purchases = §105,000,000
First, we need to convert purchases to USD using the average exchange rate during 2018 of §1 = $0.96, so
Purchases = 105,000,000/0.96 = $109,375,000.00
Then, we can calculate the COGS in USD as
COGS = 58,333,333.33 + 109,375,000.00 - 83,333,333.33 = $84,375,000.00
Therefore, the foreign subsidiary's cost of goods sold should have been reflected in the 2018 U.S. dollar income statement at $11,520,000. (COGS of $84,375,000 * exchange rate of §1 = $0.84)

A USCompany's Foreign Subsidiary Had the Following Amounts in Stickles (§)