1. On May 20, when the exchange rate was $1.40/£, a U.S. company purchased merchandise from a U.K. supplier for £10,000 and paid for the merchandise on June 5, when the exchange rate was $1.38/£. On August 15, when the exchange rate was $1.23/€, the U.S. company sold the merchandise to a customer in Belgium at an invoice price of €16,000. On September 6, when the exchange rate was $1.21/€, the U.S. company received payment of €16,000 from the Belgian customer. The U.S. company's accounting year ends December 31. What amount does the U.S. company report as cost of goods sold? A. $12,300 B. $14,000 C. $10,000 D. $13,800

For a purchase which involves foreign exchange with a credit term, ie. the amount is not paid immediately. The purchase are recorded on the transaction date and are not revalued as exchange rates change during the credit period.

On May 20, when the exchange rate was $1.40/£, a U.S. company purchased merchandise from a U.K. supplier for £10,000.

The Value on the Day of Purchase=£10,000

At an Exchange Rate of $1.40/£

Cost of Good Sold=$1.40 X 10,000

=$14,000

The company records $14,000 as the Cost of Good Sold(COGS) for the accounting year.