_____ On 1/4/06, Polaz created a foreign subsidiary, Solaz. On 10/1/06, Solaz purchased locally acquired inventory at a cost of 840,000 LCUs. The purchase price was equivalent to $140,000 on this date. At 12/31/06, Solaz's inventory consisted solely of inventory purchased on 10/1/06 and amounted to 120,000 LCUs. The exchange rate was 4 LCUs to $1 on 12/31/06, and the average exchange rate for the quarter was 5 LCUs to $1. If Solaz's functional currency is the U.S. dollar at what amount would the inventory be reported in Polaz's consolidated balance sheet at 12/31/06?
A) $20,000
B) $24,000
C) $28,000
D) $30,000
E) None of the above.

Question

Quizplus · Accepted Answer

The inventory is reported at the historical cost in the functional currency. The purchase price was $140,000, and the remaining inventory is 120,000 LCUs, which is 1/7th of the original 840,000 LCUs. Therefore, the inventory is reported at $140,000 * (120,000/840,000) = $20,000.

_____ on 1/4/06, Polaz Created a Foreign Subsidiary, Solaz