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: $$\begin{array}{l}
\begin{array} { l l r }
\text { Beginning inventory } & € 20,000 \
\text { Purchases } & € { 400,000 } \
\text { Ending inventory } & € 15,000
\end{array}\
\text { Relevant exchange rates follow: }\
\begin{array} { l r }
4 {^ \text {th } { \text {quarter average, } } 2010 } & \$ 93 = € 1 \
\text { December } 31,2010 & .94 = € 1 \
\text { Average 2011 } & .96 = € 1 \
4 {^ \text {th } { \text {quarter average, } } 2011 } & .99 = € 1 \
\text { December 31, 2011 } & 1.01 = € 1
\end{array}
\end{array}$$
-Compute ending inventory for 2011 under 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: $$\begin{array}{l}
\begin{array} { l l r } 
\text { Beginning inventory } & € 20,000 \
\text { Purchases } & € { 400,000 } \
\text { Ending inventory } & € 15,000
\end{array}\
\text { Relevant exchange rates follow: }\
\begin{array} { l r } 
4 {^ \text {th }  { \text {quarter average, } } 2010 } & \$ 93 = € 1 \
\text { December } 31,2010 & .94 = € 1 \
\text { Average 2011 } & .96 = € 1 \
4  {^ \text {th }  { \text {quarter average, } } 2011 } & .99 = € 1 \
\text { December 31, 2011 } & 1.01 = € 1
\end{array}
\end{array}$$
-Compute ending inventory for 2011 under the temporal method.

Quizplus · Accepted Answer

Under the temporal method, ending inventory is translated using the exchange rate at the date of the balance sheet, which is December 31, 2011, at 1.01 = €1. Therefore, €15,000 * 1.01 = $15,150.

Esposito Is an Italian Subsidiary of a U -Compute Ending Inventory for 2011 Under the Temporal Method