Question

Foregn Curremty Sumi Reor Origin Gas establishes a subsidiary operation in a foreign country on January 1, 2017. The country's currency is the Euro(€). To start this business. Origin Gas invests 20,000 Euro. this amount,it spends 6,000 Euro(E) immediately to acquire equipment. Later, on April 1, 2017, it also purchases land. All subsidiary operational activities occur at an even rate throughout the year. The U.S. dollar ($) exchange rates for the Euro(€) for 2017 follow January 1 April 1 June 1 €1.00= US$ 1.71 € 1.00 = US$ 1.59 €1.00 = US$ 1.66 €1.00 US$ 1.64 € 1.00 = US$ 1.62 Weighted average December 31 As of December 31, 2017, the subsidiary reports the following trial balance: Credits Debits € 18,000 18,000 6,000 Cash Accounts receivable Equipment Accumulated depreciation OLand Accounts payable Notes payable (due 2025) Common stock Dividends declared (1/06/17) Sales 1 Salary expense 1LDepreciation expense 13 Miscellaneous expenses Totals €1,200 10,000 8,000 8,000 20,000 Gauty 8,000 50,000 10,000 1,200 16,000 € 87.200 € 87,200 Being a corporation based in Ohio, Origin Gas uses the U.S. dollar as its reporting currency (a) Assume that the subsidiary's functional currency is the Euro (€). Prepare a trial balance for it in U.S. dollars so that 2017 consolidated financial statements can be prepared (b) Assume that the subsidiary's functional currency is the U.S. dollar. Prepare a trial balance for it in U.S. dollars so that 2017 consolidated financial statements can be prepared Cwreney Of unchout 1 3

Answer 1

Answer a)

Translation of Subsidiary Trial Balance

		Debits	Credits
Cash	18,000*1.62	$29,160
Accounts Receivable	18,000*1.62	29,160
Equipment	6,000*1.62	9,720
Accumulated Depreciation	1,200*1.62		$1,944
Land	10,000*1.62	16,200
Accounts Payable	8,000*1.62		12,960
Notes Payable	8,000*1.62		12,960
Common stock	20,000*1.71		34,200
Dividend Paid	8,000*1.66	13,280
Sales	50,000*1.64		82,000
Salary Expense	10,000*1.64	16,400
Depreciation Expense	1,200*1.64	1,968
Miscellaneous Expense	16,000*1.64	26,240
		$142,128	144,064
Translation Adjustment-negative		1,936
		144,064	144,064

Calculation of Translation Adjustment

Net Assets 1/1/17	0	0
Increase in Net Asset:
Common stock	20,000*1.71	34,200
Sales	50,000*1.64	82,000
Decrease in Net Asset:
Dividend Paid	8,000*1.66	(13,280)
Salary Expense	10,000*1.64	(16,400)
Depreciation Expense	1,200*1.64	(1,968)
Miscellaneous Expense	16,000*1.64	(26,240)
Net Assets 12/31	$105,200	$58,312
Net assets at current exchange rate	34,800*1.62	$56,376
Translation Adjustment-negative		$1,936

Answer b)

Remeasurement of Subsidiary Trial Balance

		Debits	Credits
Cash	18,000*1.62	$29,160
Accounts Receivable	18,000*1.62	29,160
Equipment	6,000*1.71	10,260
Accumulated Depreciation	1,200*1.71		$2,052
Land	10,000*1.59	15,900
Accounts Payable	8,000*1.62		12,960
Notes Payable	8,000*1.62		12,960
Common stock	20,000*1.71		34,200
Dividend Paid	8,000*1.66	13,280
Sales	50,000*1.64		82,000
Salary Expense	10,000*1.64	16,400
Depreciation Expense	1,200*1.71	2,052
Miscellaneous Expense	16,000*1.64	26,240
		$142,452	144,172
Remeasurement Loss		1,720
		144,172	144,172

Calculation of Remeasurement Loss

Net Assets 1/1/17	0	0
Increase in Net Asset:
Common stock	20,000*1.71	34,200
Sales	50,000*1.64	82,000
Decrease in Net Asset:
Acquired Equipment	6,000*1.71	(10,260)
Acquired Land	10,000*1.59	(15,900)
Dividend Paid	8,000*1.66	(13,280)
Salary Expense	10,000*1.64	(16,400)
Miscellaneous Expense	16,000*1.64	(26,240)
Net Assets 12/31	$20,000	$34,120
Net assets at current exchange rate	20,000*1.62	$32,400
Remeasurement Loss (debit)		$1,720