The British subsidiary of a U.S.company reported cost of goods sold of 75,000 pounds (sterling)for the current year ended December 31.The beginning inventory was 10,000 pounds,and the ending inventory was 15,000 pounds.Spot rates for various dates are as follows: Assuming the pound is the functional currency of the British subsidiary,the translated amount of cost of goods sold that should appear in the consolidated income statement is:
A) $108,750.
B) $112,500.
C) $114,300.
D) $125,700.

Question

The British subsidiary of a U.S.company reported cost of goods sold of 75,000 pounds (sterling)for the current year ended December 31.The beginning inventory was 10,000 pounds,and the ending inventory was 15,000 pounds.Spot rates for various dates are as follows:  Assuming the pound is the functional currency of the British subsidiary,the translated amount of cost of goods sold that should appear in the consolidated income statement is:
A) $108,750. 
B) $112,500. 
C) $114,300. 
D) $125,700.

Quizplus · Accepted Answer

To determine the translated amount of cost of goods sold, we need to use the average rate.

Average rate = (0.50+0.51+0.55+0.60)/4 = 0.54

Cost of goods sold in pounds = 75,000 - (15,000 - 10,000) = 70,000 pounds

Translated amount = 70,000 pounds x 0.54 = $37,800

Therefore, the translated amount of cost of goods sold that should appear in the consolidated income statement is $112,500.

The British Subsidiary of a U