Question

27. Voltac Corporation (a U.S. company located in Charlotte, North Carolina) has the following import/export transactions denominated in Mexican pesos in 2017: March 1 May 1 August 1 September 1 Bought inventory costing 100,000 pesos on credit. Sold 60 percent of the inventory for 80,000 pesos on credit. Collected 70,000 pesos from customers. Paid 60,000 pesos to suppliers. Currency exchange rates for 1 peso for 2017 are as follows: March 1 May 1 August 1 September 1 December 31 $0.10 0.12 0.13 0.14 page 377 For each of the following accounts, how much will Voltac report on its 2017 financial statements? a. Inventory. b. Cost of Goods Sold. C. Sales. d Accounts Receivable. e Accounts Payable. f. Cash

Answer 1

Reporting of Accounts

The inventory and cost of goods sold will be reported at the exchange rate on the date of inventory purchase.Sales will be reported at the exchange rate on the date of sales. Accounts receivable and accounts payable will be reported at the exchange rate at the balance sheet date. Cash will be reported at exchange rate on the date o which cash paid or received as the case may be.

a) Inventory was purchased on March 1 (exchange rate on this date was 1 peso = $0.10).

Both inventory and cost of goods sold will be reported at $0.10 per peso.

Inventory will be 40% of inventory purchased (as 60% of inventory had sold on May 1)

Inventory = (100,000 pesos*40%)*$0.10 = $4,000

b) Cost of Goods Sold = (100,000 pesos*60%)*$0.10 = $6,000

c) Sales = 80,000 pesos*$0.12 = $9,600 (Exchange rate on May 1 used)

d) Ending Balance of Accounts Receivable in pesos = Sales - Cash collected

= 80,000 pesos - 70,000 pesos = 10,000 pesos

Accounts receivable will be reported at the exchange rate on Dec 31 (balance sheet date)

Ending Balance of Accounts Receivable in $ = 10,000 pesos*$0.15 = $1,500

e) Ending Balance of Accounts payable in pesos = Purchases of Inventory - Amount paid to suppliers

= 100,000 pesos - 60,000 pesos = 40,000 pesos

Accounts payable will also be reported at the exchange rate on Dec 31 (balance sheet date)

Ending Balance of Accounts Payable in $ = 40,000 pesos*$0.15 = $6,000

f) Cash collected in $ = 70,000 pesos*$0.13 (exchange rate on Aug 1 used)

= $9,100

Cash paid in $ = 60,000 pesos*$0.14 = $8,400 (exchange rate on Sep 1 used)

Ending Balance of Cash = Cash collected - Cash paid

= $9,100 - $8,400 = $700

a)	Inventory	$4,000
b)	Cost of goods sold	$6,000
c)	Sales	$9,600
d)	Accounts receivable	$1,500
e)	Accounts payable	$6,000
f)	Cash	$700