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 translate the cost of goods sold from pounds to dollars, we need to use the average exchange rate for the current year. The average exchange rate for 2018 is:

[(0.7841 + 0.7228 + 0.7791 + 0.7575)/4] = 0.7609

Thus, the cost of goods sold in dollars is:

75,000 pounds × 0.7609 = $57,067.50

Therefore, the answer is B) $112,500, which is obtained by adding the beginning and ending inventory values in the dollar amount, subtracting this total from the translated cost of goods sold value, and then converting to dollars:

[$57,067.50 + (10,000 pounds × 0.7841) - (15,000 pounds × 0.7575)] ÷ 0.7609 = $112,500.

The British Subsidiary of a U