Question

The British subsidiary of a U.S. company reported cost of goods sold of 75,000 pounds (sterling) for the current year ended December 31. The beginning inventory was 10,000 pounds, and the ending inventory was 15,000 pounds. Spot rates for various dates are as follows: (Provide spot rates information). Assuming the dollar is the functional currency of the British subsidiary, the remeasured amount of cost of goods sold that should appear in the consolidated income statement is?

Answer 1

The question involves calculating the UK's merchandise trade deficit and current account balance for the year 2001, and explaining the treatment of foreign investment income and government transfers in the current account. The UK's merchandise trade deficit for 2001 was £33 billion, and the current account surplus was £80 billion.

Step-by-step explanation:

The question pertains to calculating various aspects of the United Kingdom's balance of payments for the year 2001. To address the problem:

1. Merchandise trade deficit is calculated by subtracting the value of imported goods (£225 billion) from the value of exported goods (£192 billion), resulting in a deficit of £33 billion.
2. The current account balance takes into consideration the trade in goods and services, income receipts and payments, as well as government transfers. The current account balance is calculated by adding the trade balance (including goods and services), net income receipts, and net government transfers. The balance for 2001 is (£192 billion + £77 billion) - (£225 billion + £66 billion) + (£140 billion - £131 billion) + (£16 billion - £23 billion), equaling a surplus of £80 billion.
3. Payments on foreign investment and government transfers are vital components of the current account. In the context of the United Kingdom, receipts of income from abroad (£140 billion) represent inflows and are positive, while income payments abroad (£131 billion) are outflows and are negative for the account. Similarly, government transfers to the rest of the world (£23 billion) are negative, and receipts from the rest of the world (£16 billion) are positive for the United Kingdom's current account.