Q1. What is an upstream sale? How it is different from downstream sale? Q2. Assu
ID: 2578929 • Letter: Q
Question
Q1. What is an upstream sale? How it is different from downstream sale?
Q2. Assume Su Co. owns 100% of Sub Co. The following intercompany transactions occurred during the year:
A) Parent loaned $200 to sub. To keep things simple, assume that there is no interest revenue or interest expense associated with this loan.
B) Parent made a sale to Sub for $300 cash. The inventory had originally cost Parent $140. Sub then sold that same inventory to an outsider for $400.
C) Parent made a sale to Sub for $400 cash. The inventory had originally cost Parent $240. Sub has not yet sold that same inventory to an outsider.
Q3.Exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in relation to another currency. You are required to explain the difference between indirect exchange rate and direct exchange rates.
Q4.Exchange rates change because of a number of economic factors affecting the supply of and demand for a nation’s currencyWhat type of economic factors affect currency exchange rates? Give an example of a change in an economic factor that results in a weakening of the local currency unit versus a foreign currency unit.
Q5.A U.S. Parent Company acquires €25,000 from its bank on January 1, 2014, for use in future purchases from German companies. The direct exchange rate is $1.20 = €1.The parent company prepares its financial statements on July 1,2014 and on that date the exchange rate was $1.10=€1.
Required: record entries for purchase of currency and adjusting entry for gain or loss on July 1, 2014.
Explanation / Answer
Q1. What is an upstream sale? How it is different from downstream sale?
Upstream sale means sale transaction made by subsidiary company to the parent company on the other hand downstream sale is sale transaction made by parent company to the subsidiary company.
Q2. Assume Su Co. owns 100% of Sub Co. The following intercompany transactions occurred during the year:
Parent loaned $200 to sub. To keep things simple, assume that there is no interest revenue or interest expense associated with this loan.
Loan Payable 200
Loan Receivable 200
Parent made a sale to Sub for $300 cash. The inventory had originally cost Parent $140. Sub then sold that same inventory to an outsider for $400.
Sales (parent to sub) 300
Cost of Goods Sold (to outsider) 300
Parent made a sale to Sub for $400 cash. The inventory had originally cost Parent $240. Sub has not yet sold that same inventory to an outsider.
Sales 400
Cost of Goods Sold cr 240
Inventory cr 160
Q3.Exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in relation to another currency. You are required to explain the difference between indirect exchange rate and direct exchange rates.
Direct exchange rates presents cost of foreign currency’s one unit in home currency on the other hand indirect exchange rates presents cost of home currency’s one unit in forign currency.
Q4.Exchange rates change because of a number of economic factors affecting the supply of and demand for a nation’s currency What type of economic factors affect currency exchange rates? Give an example of a change in an economic factor that results in a weakening of the local currency unit versus a foreign currency unit.
Economic factors affect currency exchange rates
Inflation Rates, Interest Rates, Country's Current Account / Balance of Payments, Government Debt, Terms of Trade, Political Stability & Performance, Recession and Speculation.
Economic factor that results in a weakening of the local currency unit versus a foreign currency unit is higher inflation in local currency in comparison of foreign currency.
Q5.A U.S. Parent Company acquires €25,000 from its bank on January 1, 2014, for use in future purchases from German companies. The direct exchange rate is $1.20 = €1.The parent company prepares its financial statements on July 1,2014 and on that date the exchange rate was $1.10=€1.
Required: record entries for purchase of currency and adjusting entry for gain or loss on July 1, 2014.
Purchase Dr (25000*1.2) $30000 Accounts payable Cr $30000
Accounts payable Dr (25000*(1.2-1.1)) $2500 foreign exchange gain Cr $2500
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