Fundamentals of Advanced Accounting
Fundamentals of Advanced Accounting
7th Edition
ISBN: 9781259722639
Author: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik
Publisher: McGraw-Hill Education
Question
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Chapter 8, Problem 38P

a.

To determine

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.

Expert Solution
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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 (6.3MXN/BRI) where all other accounts are remeasured at historical (H) or average (A) rates.

ParticularsBRLExchange RateMXN
 DebitCredit DebitCredit
Cash5,5006.3C34,650
Account Receivable28,0006.3C176,400
Notes payable5,0006.3C31,500
Sales35,0006.3A217,000
Rent Expenses6,0006.3A37,200
Interest Expenses5006.3A3,100
Total40,00040,000251,350248,500
Remeserment  gain2,850
Total251,350251,350

Table: (1)

Remeserment gain for 2017:

ParticularAmount
 Net monetary assets 1/1/20170
 Increase in net monetary items operation:
 ( Sales-Rent-Interest) BRL28500×6.2A176,700
 Decrease in net monetary items operation :
 Net current asset                28,500176,700
 Net asset at  current rate (28,500×6.3)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 trial balance. So, re-measured trial balance as Brazil branch should be reported as follows:

ParticularsMXN
 DebitCredit
Cash34,650
Account Receivable176,400
Notes payable31,500
Sales217,000
Rent Expenses37,200
Interest Expenses3,100
Total251,350248,500
Remeserment  gain2,850
Total251,350251,350

Table: (3)

Preparation of adjustment trial balance in Mexican Peso:

ParticularsUnadjustedAdjustmentsAdjusted
 DebitCreditDebitCreditDebitCredit
Cash1,000,00034,6501,034,650
Account Receivable3,000,000176,4003,176,400
Inventory5,000,0005,0005,000,000
Land2,000,00035,0002,000,000
Machinery and equipment15,000,00015,000,000
Accumulated Depreciation6,000,0006,000,000
Accounts Payable1,500,0001,500,000
Notes payable4,000,00031,5004,031,500
Common stock12,000,00012,000,000
Retained earnings (1/1/2017)2,500,0002,500,000
Sales34,000,000217,00034,217,000
Cost of goods sold28,000,00028,000,000
Depreciation Expenses600,000600,000
Rent Expenses3,000,00037,2003,037,200
Interest Expenses400,0003,100403,100
Dividend Expenses 7/1/20172,000,0002,000,000
Re-measurement Gain2,8502850
Total60,000,00060,000,000251,350251,3506,0251,3506,0251,350

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.

To determine

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.

Expert Solution
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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:

ParticularsNMXExchange rateUS Dollar
 DebitCreditAmountDebitCredit
Cash1,034,6500.072C74,494.8
Account Receivable3,176,4000.072C228,700.8
Inventory5,000,0000.072C360,000
Land2,000,0000.072C144,000
Machinery and equipment15,000,0000.072C1,080,000
Accumulated Depreciation60000000.072C432,000
Accounts Payable15000000.072C1,080,000
Notes payable4,031,5000.072C290,268
Common stock12,000,000Given1,000,000
Retained earnings (1/1/2017)2,500,000Given200,000
Sales34,217,0000.075A2,566,275
Cost of goods sold28,000,0000.075A2,100,000
Depreciation Expenses600,0000.075A45,000
Rent Expenses3,037,2000.075A227,790
Interest Expenses403,10030,232.5
Dividend Expenses 7/1/20172,000,000146000
Remesurement Gain2,850213.75
Total ( of all)60,251,35060,251,3504436218.14,596,756.75
Cumulative translation adjustment160538.65
60,251,35060,251,3504,596,756.754,596,756.75

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:

ParticularAmount

 Net assets 1/1/2017  14,500,000×0.080

( Common stock + Retained earnings 12000000 + 2500000)

1,160,000
 Increase in net assets:
 Net income 2017 217,550×0.075A163,466.25
 Decrease in net assets:
Dividend (7/1/2017) (2,000,000)×0.073H(146,000)
 Net asset  (12/31/17)   14,679,5501,177,466.25
 Net asset at  current rate 14,679,550×0.072C1,056,927.6
 Translation adjustment, 2017 ( negative)120,538.65

Table: (6)

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