General Computers Company owns a foreign subsidiary that reported depreciation expense for 2006 of 300,000 units of its local currency (the respecto). Of this amount, 200,000 respectos pertain to equipment acquired in 2005, when the exchange rate was $1 = 2.5 respectos. The remaining 100,000 respectos pertain to equipment acquired in 2005, when the exchange rate was $1 = 4 respectos.
The average exchange rate for 2007 was $1 = 5 respectos. The exchange rate at 12/31/06 was $1 = 6 respectos.
Required:
a. Assuming that the foreign currency is the functional currency, determine the amount to be reported for depreciation expense in U.S. dollars.
b. Same as Requirement a, but assume that the U.S. dollar is the functional currency.
c. Assuming that the U.S. dollar held constant against other major currencies from 2005 to 2006, did the respecto strengthen or weaken?

Question

Quizplus · Accepted Answer

The Answer of General Computers Company owns a foreign subsidiary that reported depreciation expense for 2006 of 300,000 units of its local currency (the respecto). Of this amount, 200,000 respectos pertain to equipment acquired in 2005, when the exchange rate was $1 = 2.5 respectos. The remaining 100,000 respectos pertain to equipment acquired in 2005, when the exchange rate was $1 = 4 respectos.
The average exchange rate for 2007 was $1 = 5 respectos. The exchange rate at 12/31/06 was $1 = 6 respectos.
Required:
a. Assuming that the foreign currency is the functional currency, determine the amount to be reported for depreciation expense in U.S. dollars.
b. Same as Requirement a, but assume that the U.S. dollar is the functional currency.
c. Assuming that the U.S. dollar held constant against other major currencies from 2005 to 2006, did the respecto strengthen or weaken?

General Computers Company Owns a Foreign Subsidiary That Reported Depreciation