Question

A Clarke Corporation subsidiary buys marketable equity securities and inventory on April 1, 2017, for 100,000 won each. It pays for both items on June 1, 2017, and they are still on hand at year-end. Inventory is carried at cost under the lower-of-cost-or-net realizable rule. Currency exchange rates for 1 won follow: January 1, 2017 $ 0.84 = 1 won April 1, 2017 0.85 = 1 June 1, 2017 0.86 = 1 December 31, 2017 0.88 = 1 Problem 10-11 (LO 10-2, 10-4) Assume that the U.S. dollar is the subsidiary’s functional currency. What balances does a consolidated balance sheet report as of December 31, 2017?

Answer 1

Answer:

Inventory at December 31th, 2017 = $85,000

Marketable securities at December 31th, $88,000

Explanation:

Inventory $100,000 WON (foreing currency)

securities $100,000 WON (foreing currency)

At April 1  The currenct exchage is 0.85

So their are posted at 100,000 x 0.85 = 85,000 Dollars

Because Inventory is carried at cost under the lower-of-cost-or-net realizable rule. their valuation doesn't change, because the WON never went down the 0.85 so their net realizable was higher than cost so

Inventory at December 31th, 2017 = $85,000

The marketable securities will be adjusted at the current exchange because they are a short term investment

Marketable securities at December 31th, $88,000