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Basic Question 3 of 7
A subsidiary of Harris Inc. is located in Germany. The functional currency of this subsidiary is the Euro (€). The subsidiary acquires inventory on October 31, 2004 for €150,000 which is sold on January 15, 2005 for €200,000. Collection of the money takes place on February 4, 2005. Applicable exchange rates are as follows (Spot rate = € / US$):
B. $157,894.74.
C. $153,061.22.
What amount is reported for this inventory on the December 31, 2004 U.S. dollar balance sheet?
A. $147,000.00.
B. $157,894.74.
C. $153,061.22.
User Contributed Comments 6
| User | Comment |
|---|---|
| danlan2 | Why use December 31, 2004 rate? current exchange rate=rate at reporting time (Dec 31, 2004) |
| PASS0808 | Assuming all-current method used instead of the temporal one |
| yxten1 | A very critical assumption |
| sjurrens | not too critical, all transactions are shown to be done in Euros, so given only that information, you would almost have to assume all-current. |
| arudkov | 2 sjurrens: why? |
| hks101 | "the FUNCTIONAL currency of this subsidiary is the Euro" -- since the question tells us what the functional currency is, we have to use all current. |
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Learning Outcome Statements
analyze how the current rate method and the temporal method affect financial statements and ratios;
CFA® 2026 Level II Curriculum, Volume 2, Module 12.