A U.S. company’s foreign subsidiary had these amounts in local currency units (LCU) in 2020: Cost of goods sold LCU 5,590,000 Beginning inventory 548,000 Ending inventory 609,000 The average exchange rate during 2020 was $1.30 = LCU 1. The beginning inventory was acquired when the exchange rate was $1.10 = LCU 1. Ending inventory was acquired when the exchange rate was $1.40 = LCU 1. The exchange rate at December 31, 2020, was $1.45 = LCU 1. Assuming that the foreign country is highly inflationary, at what amount should the foreign subsidiary’s cost of goods sold be reflected in the U.S. dollar income statement?
A U.S. company’s foreign subsidiary had these amounts in local currency units (LCU) in 2020: Cost of goods sold LCU 5,590,000 Beginning inventory 548,000 Ending inventory 609,000 The average exchange rate during 2020 was $1.30 = LCU 1. The beginning inventory was acquired when the exchange rate was $1.10 = LCU 1. Ending inventory was acquired when the exchange rate was $1.40 = LCU 1. The exchange rate at December 31, 2020, was $1.45 = LCU 1. Assuming that the foreign country is highly inflationary, at what amount should the foreign subsidiary’s cost of goods sold be reflected in the U.S. dollar income statement?
Chapter10: Measuring Exposure To Exchange Rate Fluctuations
Section: Chapter Questions
Problem 22QA
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A U.S. company’s foreign subsidiary had these amounts in local currency units (LCU) in 2020:
Cost of goods sold | LCU | 5,590,000 |
Beginning inventory | 548,000 | |
Ending inventory | 609,000 | |
The average exchange rate during 2020 was $1.30 = LCU 1. The beginning inventory was acquired when the exchange rate was $1.10 = LCU 1. Ending inventory was acquired when the exchange rate was $1.40 = LCU 1. The exchange rate at December 31, 2020, was $1.45 = LCU 1. Assuming that the foreign country is highly inflationary, at what amount should the foreign subsidiary’s cost of goods sold be reflected in the U.S. dollar income statement?
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