Question

Lancer, Inc. (a U.S.-based company), establishes a subsidiary in a foreign country on January 1, 2016. The following account balances for the year ending December 31, 2017, are stated in kanquo (KQ), the local currency:

Sales	$         200,000.00
Inventory   (bought on 3/1/17)	$       100,000.00
Equipment   (bought on 1/1/16)	$          80,000.00
Rent expense	$          10,000.00
Dividends   (declared on 10/1/17)	$          20,000.00
Notes   receivable (to be collected in 2020)	$          30,000.00
Accumulated   depreciation—equipment	$          24,000.00
Salary payable	$            5,000.00
Depreciation   expense	$            8,000.00

 

The following U.S.$ per KQ exchange rates are applicable:

1-Jan-16	$                    0.13
Average for   2016	$                    0.14
1-Jan-17	$                    0.18
1-Mar-17	$                    0.19
1-Oct-17	$                    0.21
31-Dec-17	$                    0.22
Average for   2017	$                    0.20

Lancer is preparing account balances to produce consolidated financial statements.

 

1. 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 financial statements?

2. 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 financial statements?

	Account	Exchange Rate
A	Sales
	Inventory
	Equipment
	Rent expense
	Dividends
	Notes receivable
	Accumulated depreciation-equipment
	Salary payable
	Depreciation expense
B	Sales
	Inventory
	Equipment
	Rent expense
	Dividends
	Notes receivable
	Accumulated depreciation-equipment
	Salary payable
	Depreciation expense

Answer 1

	Account	Exchange Rate
A	Sales	$                    0.20	A
	Inventory	$                    0.22	C
	Equipment	$                    0.22	C
	Rent expense	$                    0.20	A
	Dividends	$                    0.21	H
	Notes receivable	$                    0.22	C
	Accumulated depreciation-equipment	$                    0.22	C
	Salary payable	$                    0.22	C
	Depreciation expense	$                    0.20	A
B	Sales	$                    0.20	A
	Inventory	$                    0.19	H
	Equipment	$                    0.13	H
	Rent expense	$                    0.20	A
	Dividends	$                    0.21	H
	Notes receivable	$                    0.22	C
	Accumulated depreciation-equipment	$                    0.13	H
	Salary payable	$                    0.22	C
	Depreciation expense	$                    0.13	H