Question

Board Company has a foreign subsidiary that began operations at the start of 2017 with assets of 153,000 kites (the local currency unit and liabilities of 96,000. During this initial year of operation, the subsidiary reported a profit of 47,000 kites. It distributed two dividends, each for 7,100 kites with one dividend declared on March 1 and the other on October 1. Applicable exchange rates for 1 kite follow: January 1, 2017 (start of business) March 1, 2017 Weighted average rate for 2017 october 1, 2017 December 31, 2017 $0.79 0.77 0.76 0.75 0.74 a. Assume that the kite is this subsidiary's functional currency. What translation adjustment would Board report for the year 2017? b. Assume that on October 1, 2017, Board entered into a forward exchange contract to hedge the net investment in this subsidiary. On that date, Board agreed to sell 205,000 kites in three months at a forward exchange rate of $0.75/1 kite. Prepare the journal entries required by this forward contract. c. Compute the net translation adjustment for Board to report in accumulated other comprehensive income for the year 2017 under this second set of circumstances. Required A Required B Required C Assume that the kite is this subsidiary's functional currency. What translation adjustment would Board report for the year 2017? Translation adjustment Assume that on October 1, 2017, Board entered into a forward exchange contract to hedge the net investment in this subsidiary. On that date, Board agreed to sell 205,000 kites in three months at a forward exchange rate of $0.75/1 kite. Prepare the journal entries required by this forward contract. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Show less View transaction list Journal entry worksheet 4 Record the entry for the Board being entered into a forward exchange contract. Note: Enter debits before credits. Credit Date Debit General Journal 10/01 Required C Required A Required B Required C Compute the net translation adjustment for Board to report in accumulated other comprehensive income for the year 2017 under this second set of circumstances Net translation adjustment

Answer 1

a)	Net Assets in kites	Exchange Rate	Translation
Beginning Net Assets = (153,000 - 96,000) kites x $0.79	57,000.00	0.79	45,030.00
Change in Assets			-
Net Income =	47,000.00	0.77	36,190.00
Less: Dividend paid on march	(7,100.00)	0.76	(5,396.00)
Less: Dividend paid on Oct	(7,100.00)	0.75	(5,325.00)
Net assets, 12/31/17	89,800.00		70,499.00
Net assets at current at current exchange rate =  89800 x .74			66,452.00
Translation adjustment--negative (debit)			4,047.00
Negative Translation Adjustment $4047
b. Forward contract journal entries
Date	Account titles and Explanation	Debit	Credit
10/01/17	No entry
12/31/17	Forward contract (205000 x (.75 -.74)	2050
	Translation adjustment (positive)		2,050
	(To record the change in the value of the forward contract as an adjustment to the translation adjustment)
	Foreign currency (kites)	153750
	Cash		1,53,750
	(To record the purchase of 205,000 kites at the spot rate of $.75)
	Cash	1,55,800
	Foreign Currency (kites)		1,53,750
	Forward contract		2050
	(To record delivery of 205,000 kites, receipt of $155,800, and close the forward contract account.)
c)
The net negative translation adjustment (debit balance) to be reported in other comprehensive income at 12/31/17
Net Translation Adjustment (4047 - 2050)	1,997.00