_____ On 11/11/06, Puzco sold inventory costing $50,000 to Suzco, its foreign subsidiary, for $100,000. At year-end, Suzco reported in its balance sheet 60,000 LCUs of this inventory. On 11/11/06, $1 equalled 4 LCUs. On 12/31/06, $1 equalled 5 LCUs. How much intercompany profit must be deferred in the consolidated income statement at 12/31/06 under the temporal method of translation?

Question

Quizplus · Accepted Answer

The intercompany profit to be deferred is calculated based on the remaining inventory. Suzco has 60,000 LCUs of inventory, which translates to $12,000 at the 12/31/06 exchange rate (60,000 LCUs / 5 LCUs per $). The cost of this inventory is $30,000 (60% of $50,000). The profit to be deferred is $12,000 - $30,000 = -$18,000, but since profit cannot be negative, the deferred profit is $7,500 (60% of the $50,000 profit).

_____ on 11/11/06, Puzco Sold Inventory Costing $50,000 to Suzco