Question

Remeasured and Translated Trial Balance On January 2, 2019, Maddox Corporation, head‑

quartered in the U.S., established a wholly‑owned subsidiary in Mexico City. An initial investment of

P10,000,000 was made on that date; the exchange rate was $0.05/peso. During 2019, the following cash

transactions occurred at the Mexico City subsidiary. All amounts are in pesos (P).

Facilities costs (January 2; 5-year life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,000,000

Purchase of office equipment (April 1; 10-year life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000,000

Merchandise purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000,000

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000

The exchange rate was $0.06/P in April when the office equipment and P3,000,000 of merchandise were

purchased. Sales, other merchandise purchases, and operating expenses were assumed to have been made

or incurred at an average exchange rate of $0.07/P. At year‑end, the exchange rate was $0.08/P and the

ending inventory (FIFO) amounted to P2,000,000, purchased when the exchange rate was $0.07/P. All

depreciation and amortization is straight-line.

Required

a. Prepare the preclosing trial balance for the Mexico City subsidiary as of December 31, 2019, in U.S.

dollars, the subsidiary’s functional currency. Show all calculations.

b. Now assume the subsidiary’s functional currency is the peso. Prepare the subsidiary’s December 31,

2019, preclosing trial balance, in U.S. dollars.

Answer 1

Particulars	Amount in pesos (P)	Exchange Rate	Dr. Amount in $	Cr. Amount in $
Facilities	1000000	0.05/peso	50000
Acc. Depreciation on facilities	1000000/5 = 200000	0.05/peso		10000
Office Equipment	300000	0.06/peso	18000
Acc. Depreciation on Office Equipments	300000/10 = 30000	0.06/peso		1800
Sales	12000000	0.07/peso		840000
Merchandise (purchased in April)	3000000	0.06/peso	180000
Other Merchandise	6000000	0.07/peso	420000
Operating Expenses	3000000	0.07/peso	210000
Opening Inventory	2000000	0.07/peso	140000
Exchange Difference				166200
Total			1018000	1018000