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?
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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A U.S. company’s foreign subsidiary had these amounts in local currency units (LCU) in 2017:
| Cost of goods sold | LCU | 5,810,000 |
| Beginning inventory | 541,000 | |
| Ending inventory | 624,000 | |
The average exchange rate during 2017 was $1.40 = LCU 1. The beginning inventory was acquired when the exchange rate was $1.20 = LCU 1. Ending inventory was acquired when the exchange rate was $1.50 = LCU 1. The exchange rate at December 31, 2017, was $1.55 = 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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