A U.S.company's foreign subsidiary had the following amounts in stickles (§),the functional currency,in 2011: $\begin{array} { l r }
\text { Cost of goods sold } & \$ 12,000,000 \
\text { Ending inventory } & 600,000 \
\text { Beginning inventory } & 240,000
\end{array}$The average exchange rate during 2011 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 31,2011 was §1 = $.84.At what amount should the foreign subsidiary's purchases have been reflected in the 2011 U.S.dollar income statement?

Question

A U.S.company's foreign subsidiary had the following amounts in stickles (§),the functional currency,in 2011: $\begin{array} { l r } 
\text { Cost of goods sold } & \$ 12,000,000 \
\text { Ending inventory } & 600,000 \
\text { Beginning inventory } & 240,000
\end{array}$The average exchange rate during 2011 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 31,2011 was §1 = $.84.At what amount should the foreign subsidiary's purchases have been reflected in the 2011 U.S.dollar income statement?

Quizplus · Accepted Answer

The correct answer is A because the purchases should be translated at the average exchange rate for the year, which is §1 = $.96. Therefore, the purchases should be reflected in the 2011 U.S. dollar income statement at $11,865,600 (12,000,000 × .96).

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