On January 1, Dandu Corporation started a subsidiary in a foreign country. On Ap

Question

On January 1, Dandu Corporation started a subsidiary in a foreign country. On April 1, the subsidiary purchased inventory at a cost of 120,000 local currency units (LCU). One-fourth of this inventory remained unsold at the end of the year while 40 percent of the liability from the purchase had not yet been paid. The U.S. $ per LCU exchange rates were as follows:

What should be the December 31 Inventory and Accounts Payable balances for this foreign subsidiary as translated into U.S. dollars using the current rate method?

     January 1 $ 0.40   April 1 0.38   Average for the current year 0.36   December 31 0.35

Explanation / Answer

Current rate method is the exchange rate at balance sheet date

U.S. dollar

Inventory = 30000 * $0.35

=$10500

Accounts payable = 48000 *$0.35

= $16800

Note:-

inventory ending balance = 120000 LCU * 1/4

= 30000 LCU

Accounts payable = 120000 LCU * 40%

= 48000 LCU

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