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Peterson Company began business in 1980 when the general price index was 80. At that time,...

Peterson Company began business in 1980 when the general price index was 80. At that time, the company acquired all of its plant assets. Sales, purchases, and operating expenses occur evenly throughout a year. At the end of 2006, Peterson’s comparative balance sheets in Swiss francs showed: December 31 2005 2006 Monetary assets Fr. 300,000 Fr. 325,000 Monetary liabilities 320,000 315,000 Other assets 240,000 300,000 Other liabilities 80,000 115,000 Other data for 2006: Sales 270,000 Beginning inventory (FIFO basis) 70,000 Purchases of merchandise 170,000 Ending inventory (FIFO basis) 95,000 Depreciation expense 20,000 Other operating expenses and taxes 70,000 Price index information: Beginning of operations 80 Beginning of 2006 120 120 Average index during 2006 122 End of 2006 124 Required: (1) Calculate Peterson’s purchasing power gain or loss for 2006 (2) Prepare Peterson’s income statement on a constant monetary unit basis

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Answer #1
2005 2006 2005 2006
money assets      300,000      325,000 money lia 320,000 315,000
other assets      240,000      300,000 other lia           80,000 115,000
Actuals Adjusted for price index
2005   2006   2005 2006  
Sales (use average PI-122)      270,000                265,574
Inventory (use EOY PI-120, 124)        70,000        95,000               70,000 91,935
Purchase (use average PI-122)      170,000                167,213
Depriciation (use average PI-122)        20,000 19,672
Other ops expense (use average PI-122)        70,000                   68,852
Gross profit (Sales- Ops expense- Depriciation)      180,000                177,049
EOY 1980 2005 2006 Average 2006
Price index 120 120 124 122

Purchasing power loss-

From inventory- 95,000- (95,000/(124/120))= $3065

From gross profit- 180,000- (180,000/(122/120))= $2,951

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