Esposito is an Italian subsidiary of a U.S. company.
Esposito's ending inventory is valued at the average cost for the last quarter of the year.
The following account balances are available for Esposito for 2011:

Compute the cost of goods sold for 2011 in U.S. dollars using the temporal method.

Question

Esposito is an Italian subsidiary of a U.S. company.
Esposito's ending inventory is valued at the average cost for the last quarter of the year.
The following account balances are available for Esposito for 2011:

Compute the cost of goods sold for 2011 in U.S. dollars using the temporal method.

Quizplus · Accepted Answer

To compute the cost of goods sold using the temporal method, we need to use the historical exchange rate to translate the beginning inventory and the current exchange rate to translate the ending inventory. 
Beginning inventory in U.S. dollars = 190,000 / 1.30 = $146,154. 
Ending inventory in U.S. dollars = 225,000 / 1.55 = $145,161. 
Purchases in U.S. dollars = 381,500 / 1.40 = $272,500. 
Total cost of goods available for sale = 146,154 + 272,500 + 145,161 = $563,815. 
Therefore, the cost of goods sold = 563,815 - 387,750 (COGS in euros converted to U.S. dollars using the average rate for the year, which is given as 1.45) = $176,065. 
The answer is option B, $387,750.

Esposito Is an Italian Subsidiary of a U