A Foreign Subsidiary Has Provided the Following Information with Respect

Essay

A foreign subsidiary has provided the following information with respect to its year-end inventories and cost of sales for 2006:
Additional information:
a. The subsidiary's sales occurred evenly throughout the year.
b. The average exchange rate during the year was 1 LCU = $.40.
c. Purchases from vendors occurred during the first nine months, when the average rate was 1 LCU = $.42.
d. The intercompany purchases from the parent all occurred in the last three months, when the average exchange rate was 1 LCU = $.33. (The parent recorded these intercompany sales in its general ledger at $96,000.)
e. The current rate at 12/31/06 was 1 LCU = $.30.
f. The beginning inventory was reported at $50,000 in the 12/31/05 balance sheet (as expressed in U.S. dollars).
g. Assume that no lower-of-cost-or-market test in U.S. dollars need be performed at 12/31/06.
h. Required:
a. Assuming that the foreign currency is the functional currency, determine the amounts at which the cost of sales for 2006 and inventory at 12/31/06 would be reported in U.S. dollars.
b. Same as Requirement a, but assume that the U.S. dollar is the functional currency.