A U.S.firm has total assets valued at €918,000 located in Germany.This valuation did not change from last year.Last year, the exchange rate was €.92 = $1.Today, the exchange rate is €.80 = $1.By what amount did these assets change in value for the year on the firm's U.S.financial statements?

Question

Quizplus · Accepted Answer

To find the change in value, we need to convert the €918,000 into dollars using the two different exchange rates from last year and now:
Last year: €918,000 x $0.92/€1 = $844,560
Now: €918,000 x $0.80/€1 = $734,400
The change in value is the difference: $844,560 - $734,400 = $110,160 decrease in value. However, the question is asking for the amount the assets changed on the firm's U.S. financial statements, so we need to express this change in euros using the current exchange rate:
$110,160 / $0.80/€1 = €137,700 decrease in value
Since the assets did not increase in value, we can ignore the choice that says $0, leaving us with only one answer choice of D) $149,673.91 (which is the euro value of the decrease in value converted back into dollars using the current exchange rate: €137,700 x $0.80/€1 = $149,673.91).

A USFirm Has Total Assets Valued at €918,000 Located in Germany