I'm confused about this one, isn't that the functional currency is the local currency for this question, so I should use WA exchange rate for revenue and expenses?
Papco, a U.S. entity, has a subsidiary, Sapco, located in a foreign country. Sapco is essentially a sales unit for Papco. Sapco prepared the following shortened financial statements in its local currency, the FCU, for the fiscal year ended December 31, 20X8:
Statement of Net Income and
FCUs
Comprehensive Income (20X8)
(in 000)
Sales
12,000
COGS
(4,000)
Depreciation Expense
(1,000)
Other Expenses
(3,000)
Net Income
4,000
Other Comprehensive Income
0
Comprehensive Income
4,000
Retained Earnings (20X8)
Beginning Retained Earnings (end 20X7)
6,000
Add: Net Income (20X8)
4,000
Deduct: Dividends (20X8)
(1,000)
Ending Retained Earnings
9,000
Balance Sheet (12/31/20X8)
Cash and Account Receivable
2,000
Inventory at cost, acquired evenly in 20X8
6,000
Fixed Assets
10,000
Total Assets
18,000
Liabilities
2,000
Common Stock
7,000
Retained Earnings
9,000
Subtotal
18,000
Accumulated Other Comprehensive Income
0
Total Liabilities + Equity
18,000
The following exchange rates were available:
Historic exchange rate when Sanco was established by Panco:
1 FCU = $1.200
Historic exchange rate when Sanco's fixed assets were acquired:
1 FCU = $1.250
Weighted average exchange rate for 20X8:
1 FCU = $1.300
Spot exchange rate at date dividend declared:
1 FCU = $1.290
Spot exchange rate at December 31, 20X8:
1 FCU = $1.310
Which one of the following is the amount (in 000) of Sapco's depreciation expense in U.S. dollars?
$1,000
$1,250
$1,300
$1,310
.