a.
Prepare the Mexican peso trail balance for Company C S.A. for the year ending December 31, 2017 verify the amount of remesurement gain/loss derived as a plug figure in the spreadsheet through separate calculation.
a.
Explanation of Solution
Re-measurement of foreign currency balance: A portion of subsidiary’s operation is in Brazil. These balances must be remeasured into functional currency before the transaction process begins. In measuring these accounts using temporal method, peso value of the monetary assets and liabilities is determined by using the current (C) exchange rate
Particulars | BRL | Exchange Rate | MXN | ||
Debit | Credit | Debit | Credit | ||
Cash | 5,500 | 6.3C | 34,650 | ||
Account Receivable | 28,000 | 6.3C | 176,400 | ||
Notes payable | 5,000 | 6.3C | 31,500 | ||
Sales | 35,000 | 6.3A | 217,000 | ||
Rent Expenses | 6,000 | 6.3A | 37,200 | ||
Interest Expenses | 500 | 6.3A | 3,100 | ||
Total | 40,000 | 40,000 | 251,350 | 248,500 | |
Remeserment gain | 2,850 | ||||
Total | 251,350 | 251,350 |
Table: (1)
Remeserment gain for 2017:
Particular | Amount |
Net monetary assets 1/1/2017 | 0 |
Increase in net monetary items operation: | |
( Sales-Rent-Interest) | 176,700 |
Decrease in net monetary items operation : | |
Net current asset 28,500 | 176,700 |
Net asset at current rate | 179,550 |
Remeserment gain/(loss) | 2,850 |
Table: (2)
The net monetary assets exposure cash and accounts receivable (notes payable) of BRL created gain of 2850 BRL.
The re-measured figures from BRL must be combined in some manner with the subsidiary’s
Particulars | MXN | |
Debit | Credit | |
Cash | 34,650 | |
Account Receivable | 176,400 | |
Notes payable | 31,500 | |
Sales | 217,000 | |
Rent Expenses | 37,200 | |
Interest Expenses | 3,100 | |
Total | 251,350 | 248,500 |
Remeserment gain | 2,850 | |
Total | 251,350 | 251,350 |
Table: (3)
Preparation of adjustment trial balance in Mexican Peso:
Particulars | Unadjusted | Adjustments | Adjusted | |||
Debit | Credit | Debit | Credit | Debit | Credit | |
Cash | 1,000,000 | 34,650 | 1,034,650 | |||
Account Receivable | 3,000,000 | 176,400 | 3,176,400 | |||
Inventory | 5,000,000 | 5,000 | 5,000,000 | |||
Land | 2,000,000 | 35,000 | 2,000,000 | |||
Machinery and equipment | 15,000,000 | 15,000,000 | ||||
6,000,000 | 6,000,000 | |||||
Accounts Payable | 1,500,000 | 1,500,000 | ||||
Notes payable | 4,000,000 | 31,500 | 4,031,500 | |||
Common stock | 12,000,000 | 12,000,000 | ||||
2,500,000 | 2,500,000 | |||||
Sales | 34,000,000 | 217,000 | 34,217,000 | |||
Cost of goods sold | 28,000,000 | 28,000,000 | ||||
Depreciation Expenses | 600,000 | 600,000 | ||||
Rent Expenses | 3,000,000 | 37,200 | 3,037,200 | |||
Interest Expenses | 400,000 | 3,100 | 403,100 | |||
Dividend Expenses 7/1/2017 | 2,000,000 | 2,000,000 | ||||
Re-measurement Gain | 2,850 | 2850 | ||||
Total | 60,000,000 | 60,000,000 | 251,350 | 251,350 | 6,0251,350 | 6,0251,350 |
Table: (4)
Having established all accounts balances in the functional currency (MXN) the subsidiary’s trial balance now can be translated into US Dollar, under the current rate method, the dollar value to be reported for income statement items are based on the average exchange rate for the current year.
All assets and liabilities are translated at the current exchange rate at the balance sheet data and equity in effect at the date of accounting recognition.
b.
Using the part a translate Company C SA’s peso trial balance into US Dollar to facilitate Company M’s preparation of consolidated financial statements, verify the amount of cumulative translation adjustment desired as a plug figure in the spreadsheet through separate calculation.
b.
Explanation of Solution
Translation of subsidiaries trial balance into US Dollar using current rate method as functional currency is local currency.
Trial balance as on December 31, 2017:
Particulars | NMX | Exchange rate | US Dollar | ||
Debit | Credit | Amount | Debit | Credit | |
Cash | 1,034,650 | 0.072C | 74,494.8 | ||
Account Receivable | 3,176,400 | 0.072C | 228,700.8 | ||
Inventory | 5,000,000 | 0.072C | 360,000 | ||
Land | 2,000,000 | 0.072C | 144,000 | ||
Machinery and equipment | 15,000,000 | 0.072C | 1,080,000 | ||
Accumulated | 6000000 | 0.072C | 432,000 | ||
Accounts Payable | 1500000 | 0.072C | 1,080,000 | ||
Notes payable | 4,031,500 | 0.072C | 290,268 | ||
Common stock | 12,000,000 | Given | 1,000,000 | ||
Retained earnings (1/1/2017) | 2,500,000 | Given | 200,000 | ||
Sales | 34,217,000 | 0.075A | 2,566,275 | ||
Cost of goods sold | 28,000,000 | 0.075A | 2,100,000 | ||
Depreciation Expenses | 600,000 | 0.075A | 45,000 | ||
Rent Expenses | 3,037,200 | 0.075A | 227,790 | ||
Interest Expenses | 403,100 | 30,232.5 | |||
Dividend Expenses 7/1/2017 | 2,000,000 | 146000 | |||
Remesurement Gain | 2,850 | 213.75 | |||
Total ( of all) | 60,251,350 | 60,251,350 | 4436218.1 | 4,596,756.75 | |
Cumulative translation adjustment | 160538.65 | ||||
60,251,350 | 60,251,350 | 4,596,756.75 | 4,596,756.75 |
Table: (5)
The Cumulative translation adjustment at 12/31/2017 comprises the beginning balance (given) plus the translation adjustment for the current year.
Translation adjustment, 2017:
Particular | Amount |
Net assets 1/1/2017 ( Common stock + Retained earnings 12000000 + 2500000) | 1,160,000 |
Increase in net assets: | |
Net income 2017 | 163,466.25 |
Decrease in net assets: | |
Dividend (7/1/2017) | (146,000) |
Net asset (12/31/17) 14,679,550 | 1,177,466.25 |
Net asset at current rate | 1,056,927.6 |
Translation adjustment, 2017 ( negative) | 120,538.65 |
Table: (6)
Want to see more full solutions like this?
Chapter 10 Solutions
LooseLeaf for Advanced Accounting (Irwin Accounting) - Standalone book
- Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018, for 130,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency exchange rates are as follows:Cost of goods sold . . .. LCU 5,000,000Beginning inventory . . . . . . . 500,000Ending inventory . . . . . . . . . . 600,000November 1, 2017 . . . . $0.16 = 1 pesoDecember 31, 2017 . ...... . . 0.17 = 1January 17, 2018 . . . . . . . . . 0.18 = 1January 31, 2018 . . . . . . . . 0.19 = 1 What amount does Newberry’s consolidated balance sheet report for this inventory at December 31, 2017? Choose the correct.a. $16,000.b. $17,000.c. $18,000.d. $19,000.arrow_forwardNewberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 100,000 pesos that is sold on January 17, 2018, for 130,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency exchange rates are as follows:Cost of goods sold . . .. LCU 5,000,000Beginning inventory . . . . . . . 500,000Ending inventory . . . . . . . . . . 600,000November 1, 2017 . . . . $0.16 = 1 pesoDecember 31, 2017 . ...... . . 0.17 = 1January 17, 2018 . . . . . . . . . 0.18 = 1January 31, 2018 . . . . . . . . 0.19 = 1What amount does Newberry’s consolidated income statement report for cost of goods sold for the year ending December 31, 2018?a. $16,000.b. $17,000.c. $18,000.d. $19,000.arrow_forwardThe controller of Pane Co. was preparing the company's financial statements. Pane had a wholly owned subsidiary in a foreign country that used the euro as its currency. At December 31, the exchange rate was $1 U.S. for 1.25 euro. The weighted-average exchange rate for the year was $1 U.S. for 1.50 euro. At December 31, the subsidiary had assets of 1 million euro and revenue for the year of 2 million euro. What amounts would assets and revenue translate for consolidation? Assets Revenue A. $666,666 $1,333,333 B. $666,666 $1,600,000 C. $800,000 $1,333,333 D. $800,000 $1,600,000arrow_forward
- Baxter Industries, Inc., is a U.S. company that has a wholly owned subsidiary. The subsidiary maintains its book and records in a foreign currency (FC) and the majority of its local expenses such as payroll, utilities, rent, etc., are paid in FC. However, the U.S. dollar is considered to be its functional currency. Selected exchange rates are as follows: 1 FC= 1 FC= March 1, 2013 . . . . . . . . . . . . $1.50 March 1, 2013 . . . . . . . . . . . . $1.50 Third quarter 2014 . . . . . . . . . 1.62 Fourth quarter 2014 . . . . . . . . 1.65 June 30, 2015. . . . . . . . . . . . . 1.70 First quarter 2015 . . . . . . . . . $1.50 Second quarter 2015 . . . . . . 1.75 Third quarter 2015 . . . . . . . . 1.71 Fourth quarter 2015 . . . . . . . 1.66 December 31, 2015 . . . . . . . 1.65 1. Identify several specific factors that would suggest that the U.S. dollar is the functional currency in spite of the fact regarding local expenses. 2. For each of the following compute the remeasured…arrow_forwardXYZ Corp, has carried out transactions denominated in foreign currency during the financial year ended 31 October 2019 and has conducted foreign operations through a foreign entity. Its functional and presentation currency is the US dollar. XYZ purchased inventory from a foreign supplier for Euros 8 million on 31 July 2019, the trade payable was still outstanding and the inventory were still held by XYZ Corp. XYZ Corp sold its products to a foreign customer for Euros 4 million on 31 July 2019 and received payment for the products in euros on 31 October 2019. Additionally, XYZ Corp purchase investment property on 1 November 2018 for Euros 28 million. At 31 October 2019, the investment property had a fair value of Euros 24 million. The company uses the fair value model in accounting for its investment properties. XYZ would like advice on how to treat this transactions in the financial statement for the year ended 31 October 2019. Exchange rates Date Euro:$ Average Rate for Year to…arrow_forwardA subsidiary of Dunder Inc., a U.S. company, was located in a foreign country. The functional currency of this subsidiary was the Stickle (§) which is the local currency where the subsidiary is located. The subsidiary acquired inventory on credit on November 1, 2020, for §160,000 that was sold on January 17, 2021 for §207,000. The subsidiary paid for the inventory on January 31, 2021. Currency exchange rates between the dollar and the Stickle were as follows: November 1, 2020 $ 0.21 = § 1 December 31, 2020 $ 0.22 = § 1 January 1, 2021 $ 0.24 = § 1 January 31, 2021 $ 0.25 = § 1 Average for 2021 $ 0.27 = § 1 What amount would have been reported for this inventory in Dunder’s consolidated balance sheet at December 31, 2020?arrow_forward
- Kangaroo Ltd is an Australian company for which the Australian dollar is the functional and presentation currency. The company has entered several foreign activities, and these include the following: Kangaroo Ltd has sold some inventory to a company in Hong Kong for HK$50,000. The order was placed by the Hong Kong company on 12 May 2016, with delivery made on 20 June 2016. Under the conditions of the contract, title to the goods passes to the Hong Kong company on delivery (i.e., term of the sale was FOB delivery or destination). Kangaroo Ltd receives payment for the goods on 20 July 2016. The following exchange rates are applicable: 12 May 2016: A$1.00 = HK$5.70 20 June 2016: A$1.00 = HK$6.20 30 June 2016: A$1.00 = HK$6.50 20 July 2016: A$1.00 = HK$6.40 Required: Prepare necessary journal entries in books of Kangaroo Ltd following the requirements of AASB121, The Effects of Changes in Foreign Exchange…arrow_forwardThe following balance sheet accounts of a foreign subsidiary at December 31, 2017, have been translated into U.S. dollars as follows: Translated at Current Rates Historical Rates Accounts receivable, current $ 600,000 $ 600,000 Accounts receivable, long-term 300,000 324,000 Inventories carried at market 180,000 198,000 Goodwill 190,000 220,000 $1,270,000 $ 1,402,000 What total should be included in the translated balance sheet at December 31, 2017, for the above items? Assume the U.S. dollar is the functional currency. $1,354,000 $1,270,000 $1,288,000 $1,300,000arrow_forwardASSUME THAT THE LOCAL CURRENCY UNIT IS THE FUNCTIONAL CURRENCY. Cade Inc. had a debit adjustment of $6400 for the year ended December 31, 2019, from restating its foreign subsidiary's accounts from their local currency units into U.S. dollars. Additionally, Cade had a receivable from a foreign customer. It is denominated in the customer's local currency. On December 31, 2018, this receivable for 300,000 local currency units (LCU) was correctly included in Cade's balance sheet at $121000. When the receivable was collected on February 15, 2019, the U.S. dollar-equivalent was $123800. In Cade's 2019 consolidated statement of income, how much should be reported as foreign exchange gain/(loss) in computing net income? BE SURE TO TYPE A SIMPLE NUMBER WITH NO COMMAS OR DOLLAR SIGNS. FOR EXAMPLE, TYPE 1000 INSTEAD OF $1,000. IF THE NUMBER IS NEGATIVE, TYPE -1000 INSTEAD OF ($1,000) Your Answer:arrow_forward
- Required information Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 210,000 pesos that is sold on January 17, 2018, for 243,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency exchange rates are as follows: $0.54 =1 peso November 1, 2017 December 31, 2017 January 17, 2018 January 31, 2018 0.55 =1 0.56 =1 %3D 0.57 =1arrow_forwardOn January 1, 2024, Trenten Systems, a U.S.-based company, purchased a controlling interest in Grant Management Consultants located in Zurich, Switzerland. The acquisition was treated as a purchase transaction. The 2024 financial statements stated in Swiss francs are given below. GRANT MANAGEMENT CONSULTANTS Comparative Balance Sheets January 1 and December 31, 2024 Direct exchange rates for Swiss franc are: Required: A. Translate the year-end balance sheet and income statement of foreign subsidiary using the current rate method of translation. B. Prepare a schedule to verify the translation adjustment. Cash and Receivables Net Property, Plant, and Equipment 40,000 37,000 60,000 92,000 30,000 32,000 20,000 20,000 10,000 40,000 60,000 92,000 Totals Accounts and Notes Payable Common Stock Retained Earnings Totals GRANT MANAGEMENT CONSULTANTS Consolidated Income and Retained Earnings Statement for the Year Ended December 31, 2024 Jan. 1 Dec. 31 20,000 55,000 Revenues 75,000 Operating…arrow_forwardVoltac Corporation (a U.S. company located in Charlotte, North Carolina) has the following import/ export transactions denominated in Mexican pesos in 2017:Currency exchange rates for 1 peso for 2017 are as follows:For each of the following accounts, how much will Voltac report on its 2017 financial statements?a. Inventory.b. Cost of Goods Sold.c. Sales.d. Accounts Receivable.e. Accounts Payable.f. Cash.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education