Palmerstown Company

Case 8-2 Palmerstown Company Exchange Rates | $/pound | January 1, Year 1 | 1.00 | January 1-31, Year 1 | 1.00 | Average Year 1 | 0.90 | When inventory purchases made | 0.86 | When ending inventory acquired | 0.83 | December 31, Year 1 | 0.80 | 1. Pound is the functional currency – Current rate method | | Exchange | | | Pounds | Rate | U.S. $ | Sales | 15,000 | 0.900 | 13,500 | Cost of goods sold | (9,000) | 0.900 | (8,100) | Gross profit | 6,000 | | 5,400 | Selling and administrative expense | (3,000) | 0.900 | (2,700) | Depreciation expense | (1,000) | 0.900 | (900) | Income before tax | 2,000 | | 1,800 | Income taxes | (600) | 0.900 | (540) | Net income | 1,400 | | 1,260 | Plus: Retained earnings, 1/1/Y1 | - | | - | Retained earnings, 12/31/Y1 | 1,400 | | 1,260 | | | | | Cash | 2,400 | 0.800 | 1,920 | Inventory | 4,000 | 0.800 | 3,200 | Fixed assets | 10,000 | 0.800 | 8,000 | Less: accumulated depreciation | (1,000) | 0.800 | (800) | Total assets | 15,400 | | 12,320 | | | | | Current liabilities | 2,000 | 0.800 | 1,600 | Long-term debt | 4,000 | 0.800