Question

Lancer, Inc. (a U.S.-based company), establishess a subsldiary In a forelgn country on January 1, 2016. The following account balances for the year ending December 31, 2017, are stated In kanquo (KQ). the local currency: 378,e0e 283,50e 94,e0e Sales ко Inventory (bought on 3/1/17) Equipnent (bought on 1/1/16) Rent expense 24,eee 30,eee 53,eee 28,200 8,400 9,400 Dividends (declared on 18/1/17) Notes receivable (to be collected in 2828) Accumulated depreciation-equipnent Salary payable Depreciation expense The following U.S.$ per KQ exchange rates are applicable: January 1, 2816 Average for 2816 January 1, 2017 March 1, 2017 October 1, 2017 December 31, 2017 Average for 2817 $e.36 .37 .41 .42 .44 e.45 e.43 Lancer is preparlng account balances to produce consolidated financlal statements. a. Assuming that the kanquo is the functional currency, what exchange rate would be used to report each of these accounts In U.S. dollar consolidated financlal statements? b. Assuming that the U.S. dollar is the functional currency, what exchange rate would be used to report each of these accounts In U.S. dollar consolidated financlal statements? (Round your answers to 2 decimal places.)

Answer 1

In business combination, two units are combined into one. After combination, the financial statements need to be consolidated and circumstances arise when the entities have different currencies. The financials need to be translated using exchange rates. Translated adjustments are incorporated in balance sheet to account for fluctuation in foreign exchange rates.

a.

If the functional currency is foreign currency, translation is done at current rate method. That means all the assets and liabilities will be translated at current rate.

Accounts	(a) Current exchange rate Method	(b) Temporal exchange rate Method
	Translation	Remeasurement
Sales	0.43 A	0.43 A
Inventory	0.45 C	0.42 H
Equipment	0.45 C	0.36 H
Rent expense	0.43 A	0.43 A
Dividends	0.44 H	0.44 H
Notes receivable	0.45 C	0.45 C
Accumulated depreciation equipment	0.45 C	0.36 H
Salary payable	0.45 C	0.45C
Depreciation expense	0.43 A	0.36 H

Here

C stands for Current exchange rate

A for average exchange rate

H for historical exchange rate

b.

While in the temporal method, the translation is made at the rates the assets and liabilities were acquired.

Accounts	(b) Temporal exchange rate Method
	Remeasurement
Sales	0.43 A
Inventory	0.42 H
Equipment	0.36 H
Rent expense	0.43 A
Dividends	0.44 H
Notes receivable	0.45 C
Accumulated depreciation equipment	0.36 H
Salary payable	0.45C
Depreciation expense	0.36 H

Here

C stands for Current exchange rate

A for average exchange rate

H for historical exchange rate

kindly upvote