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

Quizplus · Accepted Answer

To translate the cost of goods sold from pounds to U.S. dollars, we need to use the average exchange rate for the year.

Average exchange rate = (beginning inventory + ending inventory) / 2
= (10,000 + 15,000) / 2
= 12,500 pounds

Translated cost of goods sold = cost of goods sold / average exchange rate
= 75,000 / 12,500
= $6 per pound

Therefore, the translated amount of cost of goods sold in U.S. dollars is:
$6 x 18,750 pounds = $112,500.

Thus, the correct answer is B.

The British Subsidiary of a U