Question

Q24 Meadows Limited, a foreign subsidiary of U.S. based Meadows Inc. operates primarily for the benefit of its parent company. When the exchange rate was $1.30 per one British Pound Sterling (£), Meadows Limited purchased Inventory for £2,100 pounds. Meadows resells one-third of the inventory for £900 when the exchange rate was $1.26 per Pound Sterling and another one-third for £900 when the exchange rate was $1.28 per Pound Sterling. The parent company applies the temporal method in its process of consolidating the financial results of its subsidiaries with its own financial results.

Meadows Inc. reports gross profit associated with its subsidiary in the amount of:

Multiple Choice

• $526

• $508

• $576

• $466

Answer 1

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Meadows	Amount $	Note
Purchase cost in pounds	2,100.00	A
Exchange rate	1.30	B
Purchase cost in $	2,730.00	C=A*B
Cost of goods sold in $ (1/3+1/3)	1,820.00	D=C/3*2
Sales in pounds	900.00	E
Exchange rate	1.26	F
Sales in $	1,134.00	G=E*F
Sales in pounds	900.00	H
Exchange rate	1.28	I
Sales in $	1,152.00	J=H*I
Total Sales in $	2,286.00	K=J+G
Gross profit to be reported	466.00	L=K-D
So answer is $ 466.