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2. The Direct Foreign Exchange Rate in U.S. Dollars is asfollows:

1 British Pound = $ 1.56

A. What is the Indirect Exchange Rate for theBritish pound?

B. How many pounds must a British company use to buy goodscosting $10,000 from a U.S.company?

C. How many U.S. dollars must be paid to purchase goods costing10,000 British pounds?

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Irving Heathcote
Irving HeathcoteLv2
28 Sep 2019

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On October 1, 2014, Foss Company sold inventory to a company inEngland. The sale was for 500,000 British pounds and payment willbe received on March 1, 2015. On October 1, Foss entered into aforward contract to sell 500,000 British pounds on March 1 at theforward rate of $1.68. Spot rates for the British pound are asfollows:
October1 $1.60
December31 1.67
March1 1.65

Foss has a December 31 fiscal year-end.

Required:
Compute each of the following:

1. The dollars tobe received on March 1, 2015, from selling the 500,000 pounds tothe exchange dealer.

2. The dollars thatwould have been received from the account receivable if Foss hadnot indicate the negative hedged the sale contract with the forwardcontract.

3. The discount orpremium on the forward contract.

4. The transactiongain or loss on the exposed asset related to the sale in 2014 and2015.

5. The transactiongain or loss on the forward contract in 2014 and 2015.

6. The amount ofthe discount or premium on the forward contract amortized in 2014and 2015.

Kerry Manufacturing Company is a German subsidiary of a U.S. company. Kerry records its operations
and prepares financial statements in euros. However, its functional currency is the British pound.
Kerry was organized and acquired by the U.S. company on June 1, 20X4. The cumulative translation
adjustment as of December 31, 20X6, was $79,860. The value of the subsidiary's retained earnings expressed
in British pounds and U.S. dollars as of December 31, 20X7, was 365,000 pounds and $618,000, respectively.
On March 1, 20X7, Kerry declared a dividend of 120,000 euros. The trial balance of Kerry in euros as of
December 31, 20X7, is as follows:
Debit Credit
Cash 240,000
Accounts Receivable (net) 2,760,000
Inventory (at cost) 3,720,000
Marketable Securities (at cost) 2,040,000
Prepaid Insurance 210,000
Depreciable Assets 8,730,000
Accumulated Depreciation 1,417,000
Cost of Goods Sold 17,697,000
Selling, General, and
Administrative Expense 4,762,000
Sales Revenue 26,430,000
Investment Income 180,000
Accounts Payable 2,120,000
Unearned Sales Revenue 960,000
Loans and Mortgage Payable 5,872,000
Common Stock 1,500,000
Paid-in Capital in Excess of Par 210,000
Retained Earnings 1,470,000
Total 40,159,000 40,159,000
The marketable securities were acquired on November 1, 20X6, and the prepaid insurance was acquired on
December 1, 20X7. The cost of goods sold and the ending inventory are calculated by the weighted-average
method.
The following items are measured in pound at the December 31, 20x7.
Euros Pounds
Accumulated depreciation
Depreciable Assets 8,730,000 2,671,380
Cost of Goods Sold 17,697,000 5,262,294
Selling, General, Admin. Expense 4,762,000 1,415,886
Accumulated Depreciation 1,417,000 773,915
Sales Revenue 26,430,000 7,866,030
On November 1, 20X6, Kerry received a customer prepayment valued at 3,000,000 euros. On February 1, 3000000
20X7, 2,040,000 euros of the prepayment was earned. The balance remains unearned as of December 31, 2040000
20X7. 960000
Relevant exchange rates are as follows:
Pounds/Euro $/Pound
June 1, 20X4 0.31 $1.60
March 1, 20X6 0.3 $1.64
November 1, 20X6 0.305 $1.65
December 31, 20X6 0.31 $1.68
February 1, 20X7 0.302 $1.67
March 1, 20X7 0.3 $1.66
December 1, 20X7 0.29 $1.64
December 31, 20X7 0.288 $1.64
20X7 average 0.297 $1.66
Required:
Prepare a remeasured and translated trial balance of the Kerry Manufacturing
Company as of December 31, 20X7.
ANS:
Kerry Manufacturing Company
Trial Balance Translation
December 31, 20X7
Relevant Relevant
Exchange Exchange
Balance in Rate Balance in Rate Balance in
Account Euros (Pds/Euros) Pounds ($/Pds) Dollars
Cash 240,000
Accounts Receivable (net) 2,760,000
Inventory (at cost) 3,720,000
Marketable Securities (at cost) 2,040,000
Prepaid Insurance 210,000
Depreciable Assets 8,730,000
Cost of Goods Sold 17,697,000
Selling, General, Admin. Expense 4,762,000
Exchange Loss
Total Debits 40,159,000 12,183,001 20,117,316
Accumulated Depreciation 1,417,000
Sales Revenue 26,430,000
Investment Income 180,000
Accounts Payable 2,120,000
Unearned Sales Revenue 960,000
Loans and Mortgage Payable 5,872,000
Common Stock 1,500,000
Paid-in Capital in Excess of Par 210,000
Retained Earnings 1,470,000
Cumulative Translation
Adjustment 0 -19,392
Total Credits 40,159,000 12,183,001 20,117,316

A company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 70,000 pounds. The subsidiary immediately borrowed 139,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 209,000 pounds a building that had a 10-year expected life and no salvage value and is to be depreciated using the straight-line method. Also on January 1, 2017, the subsidiary rented the building for three years to a group of local attorneys for 8,800 pounds per month. By year-end, rent payments totaling 88,000 pounds had been received, and 17,600 pounds was in accounts receivable. On October 1, 4,900 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 13,700 pounds back to Sullivan's Island Company on December 31, 2017. The functional currency for the subsidiary is the pound. Currency exchange rates for 1 pound follow: January 1, 2017 $ 3.00 = 1 Pound October 1, 2017 3.05 = 1 December 31, 2017 3.08 = 1 Average for 2017 3.04 = 1 Prepare a statement of cash flows in pounds for Sullivan's Island Company's foreign subsidiary and then translate these amounts into U.S. dollars. (Round your exchange rate answers to 2 decimal places. Amounts to be deducted and cash outflows should be indicated with minus sign.)

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