Sonnet Company began operations as a new subsidiary of Poem Company, a U.S. Corporation, on January 2, 2019, by issuing common stock for 180,000 foreign currency units (FCU). Sonnet immediately borrowed 35,000 FCU with a 10-year, 10% note, interest payable annually on January 1. On the same date, Sonnet bought a building for 200,000 FCU. The building was to be depreciated for 20 years on a straight-line basis with a residual value of 40,000 FCU. During the year, the building was rented for 9,000 FCU per month and all rent was collected monthly. On May 1 a repair on the building of 15,000 FCU was completed and paid for. Land for a parking lot was acquired for 30,000 FCU in cash on June1. A dividend of 20,000 FCU was declared and paid on December 1. (The dividend was paid to Poem which owns 100% of Sonnet.) Exchange rates for the year were as follows: January 2, 2019 1 FCU = $0.30 May 1, 2019 1 FCU = $0.39 June 1, 2019 1 FCU = $0.38 November 1, 2019 1 FCU = $0.41 December 1, 2019 1 FCU = $0.40 December 31, 2019 1 FCU = $0.35 average 1 FCU = $0.37 Poem Company determined that the FCU was the functional currency and translation using the current rate method was appropriate for consolidation. Calculate the translation adjustment for 2019. This problem does not ask for the remeasurement gain or loss using the temporal approach. (The current rate method focuses on changes in net assets while the temporal method focuses on changes in net monetary assets.)
Sonnet Company began operations as a new subsidiary of Poem Company, a U.S.
Corporation, on January 2, 2019, by issuing common stock for 180,000 foreign
currency units (FCU). Sonnet immediately borrowed 35,000 FCU with a 10-year, 10%
note, interest payable annually on January 1. On the same date, Sonnet bought a
building for 200,000 FCU. The building was to be
straight-line basis with a residual value of 40,000 FCU.
During the year, the building was rented for 9,000 FCU per month and all rent
was collected monthly.
On May 1 a repair on the building of 15,000 FCU was completed and paid for. Land
for a parking lot was acquired for 30,000 FCU in cash on June1.
A dividend of 20,000 FCU was declared and paid on December 1. (The dividend
was paid to Poem which owns 100% of Sonnet.)
Exchange rates for the year were as follows:
January 2, 2019 1 FCU = $0.30
May 1, 2019 1 FCU = $0.39
June 1, 2019 1 FCU = $0.38
November 1, 2019 1 FCU = $0.41
December 1, 2019 1 FCU = $0.40
December 31, 2019 1 FCU = $0.35
average 1 FCU = $0.37
Poem Company determined that the FCU was the functional currency and
translation using the current rate method was appropriate for consolidation.
Calculate the translation adjustment for 2019.
This problem does not ask for the remeasurement gain or loss using the
temporal approach.
(The current rate method focuses on changes in net assets while the temporal
method focuses on changes in net monetary assets.)
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