A U.S. company has a subsidiary located in Great Britain. Information for the subsidiary for the year ended December 31, 2006, is as follows:
$\begin{array}{ll}
&\text { British pound }\
\text { Gross profit margin } & 40 \% \
\text { Inventory } & 2,000\
\
&\text { Exchange Rate }\
\text { Balance sheet date } & 1 \text { pound }=\$ 1.6 \
\text { Average exchange rate } & 1 \text { pound }=\$ 1.5 \
\text { Historical rate } & 1 \text { pound }=\$ 1.4
\end{array}$

-If sales were 3,000 in British pounds for the fiscal year and the temporal method was used, what would this be in U.S. dollars?

Question

A U.S. company has a subsidiary located in Great Britain. Information for the subsidiary for the year ended December 31, 2006, is as follows:
 $\begin{array}{ll}
&\text { British pound }\
\text { Gross profit margin } & 40 \% \
\text { Inventory } & 2,000\
\
&\text { Exchange Rate }\
\text { Balance sheet date } & 1 \text { pound }=\$ 1.6 \
\text { Average exchange rate } & 1 \text { pound }=\$ 1.5 \
\text { Historical rate } & 1 \text { pound }=\$ 1.4
\end{array}$

-If sales were 3,000 in British pounds for the fiscal year and the temporal method was used, what would this be in U.S. dollars?

Quizplus · Accepted Answer

To convert from pounds to dollars under the temporal method, we need to use the exchange rate at the time of the transaction. Let's assume that the average exchange rate for the year was £1 = $1.50. Then, the sales revenue in dollars would be:

3,000 pounds x ($1.50 / £1) = $4,500

Therefore, the correct answer is B ($4,500).

A US Company Has a Subsidiary Located in Great Britain