A U.S. company’s foreign subsidiary had these amounts in foreign currency units (FCU) in 2011:
Cost of goods sold . . . . . . . . . . . . . . . FCU 10,000,000
Ending inventory . . . . . . . . . . . . . . . . 500,000
Beginning inventory . . . . . . . . . . . . . . 200,000
The average exchange rate during 2011 was $0.80 = FCU 1. The beginning inventory was acquired when the exchange rate was $1.00 = FCU 1. Ending inventory was acquired when the exchange rate was $0.75 = FCU 1. The exchange rate at December 31, 2011, was $0.70 = FCU 1. Assuming that the foreign country is highly inflationary, at what amount should the foreign subsidiary’s cost of goods sold be reflected in the U.S. dollar income statement?
a. $7,815,000.
b. $8,040,000.
c. $8,065,000.
d. $8,090,000.
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