Use the following information for question 14 and 15. The Windsor, Canada, branc
ID: 2582983 • Letter: U
Question
Use the following information for question 14 and 15. The Windsor, Canada, branch of the Detroit Company provided the following information about its December 31, 2005, inventory:
________________________________________________________________
Inventory Exchange Rate at
Purchase Date ________________________________________________________________
C$30,000 C$1 = U.S. $.715
20,000 .728
10,000 .758
Total cost……………………………………. C$60,000
Replacement cost……………………………. C$58,000
________________________________________________________________
The average exchange rate for the year was C$1=$.734. the year-end rate is $.758.
Detroit Company uses the lower of FIFO cost or market to value inventories.
1. If the Canadian dollar is the functional currency for the Windsor branch, the December 31, 2005, inventory should be included in the Detroit Company’s balance sheet at:
a. $43,590
b. $43,964
c. $44,040
d. $45,480
2. If the U.S. dollar is the functional currency for the Windsor branch, the December 31, 2005, inventory should be included in the Detroit Company’s balance sheet at:
a. $43,590
b. $43,964
c. $44,040
d. $45,480
Explanation / Answer
C$58,000*.758 = $43964
Therefore answer is b. $43,964
2. Since US$ is the functional currency we need to convert C$ to US$ of all the inventory transaction to determine the lowest value. 1st we look at the calculation of the purchase value. I.e. market value.
C$30,000* .715 + C$20,000*.728 + C$10,000*.758 = $43,590
Then we look at the replacement cost. I.e. FIFO cost
C$58,000 * .758 = $43,964
Therefore lower value is $43,590 and the answer is a. $43,590.
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