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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
compare the current rate method and the temporal method, evaluate how each affects the parent company's balance sheet and income statement, and determine which method is appropriate in various scenarios;
calculate the translation effects and evaluate the translation of a subsidiary's balance sheet and income statement into the parent company's presentation currency;
CFA® 2025 Level II Curriculum, Volume 2, Module 12.