Placo Ltd., a Scottish subsidiary of Limko, Inc., a U.S. company, showed cost of goods sold on its income statement for the year ended December 31, 2010. What amount should be used to consolidate Placo's cost of goods sold into Limko's income statement under the current rate method?
A) $417,600
B) $437,600
C) $448,000
D) $443,900

Question

Placo Ltd., a Scottish subsidiary of Limko, Inc., a U.S. company, showed cost of goods sold on its income statement for the year ended December 31, 2010.   What amount should be used to consolidate Placo's cost of goods sold into Limko's income statement under the current rate method?
A) $417,600 
B) $437,600 
C) $448,000 
D) $443,900

Quizplus · Accepted Answer

To consolidate Placo’s cost of goods sold into Limko’s income statement under the current rate method, we need to use the average exchange rate for the year.

Average exchange rate for the year = (Beginning rate + Ending rate) / 2 
= ($0.60 + $0.65) / 2 
= $0.625

Therefore, cost of goods sold in USD = cost of goods sold in local currency / average exchange rate 
= £275,000 / $0.625 
= $440,000

Hence, the correct amount to be used to consolidate Placo’s cost of goods sold into Limko’s income statement under the current rate method is $437,600 ($440,000 rounded to the nearest $100).

Thus, the correct answer is B.

Placo Ltd, a Scottish Subsidiary of Limko, Inc