Question

Pencil Corp uses the US dollar as its functional currency. The receivable is not hedged. At December 31, 2020 Pencil has the following foreign currency balances:

Accounts Receivable (due in 3 months) FC 30,000
Inventory (at cost) FC 20,000
Fixed Assets FC 10,000
The following exchange rates were in effect:
December 31 spot rate: 1FC = .6 US
December 31 three month forward rate: 1FC .5 US
Historic rate: 1FC .7 US
Average exchange rate (2020). 1FC .8 US
What is the US dollar equivalent for the total of Accounts Receivable, Inventory and Fixed Assets that will be reported by Pencil on its December 31, 2020 balance sheet.
a $102,857.
b. 6.539,000.
c. $60,000.
d. $92,857.
e. 535,000.

Answer 1

The US dollar equivalent for the total of Accounts Receivable, Inventory, and Fixed Assets that will be reported by Pencil on its December 31, 2020 balance sheet is $36,000.

Step-by-step explanation:

To calculate the US dollar equivalent for the total of Accounts Receivable, Inventory, and Fixed Assets, we need to convert the foreign currency amounts to US dollars. We will use the exchange rates given to make the conversions:

1. Accounts Receivable: FC 30,000 * 0.6 US dollars = 18,000 US dollars
2. Inventory: FC 20,000 * 0.6 US dollars = 12,000 US dollars
3. Fixed Assets: FC 10,000 * 0.6 US dollars = 6,000 US dollars

The total US dollar equivalent for Accounts Receivable, Inventory, and Fixed Assets is $18,000 + $12,000 + $6,000 = $36,000.

Answer 2

b. $39,000.

Step-by-step explanation:

Inventory & Fixed assets will be recognized at historic rate.

Accounts receivable will be recognized at closing rate.

Accounts receivable = FC 30,000 * 0.7

Accounts receivable = $21,000

Inventory = FC 20,000 * 0.6

Inventory = $12,000

Fixed assets = FC 10,000 * 0.6

Fixed assets = $6,000

Total = Accounts receivable + Inventory + Fixed assets

Total = $21,000 + $12,000 + $6,000

Total = $39,000