Kingsfield starts a subsidiary operation in a foreign country on January 1, 2011. The country’s currency is the kumquat (KQ). To start this business, Kingsfield invests 10,000 kumquats. Of this amount, it spends 3,000 kumquats immediately to acquire equipment. Later, on April 1, 2011, it also purchases land. All subsidiary operational activities occur at an even rate throughout the year. The currency exchange rates for the kumquat for this year follow:
January 1, 2011 | $1.71 |
April 1, 2011 | 1.59 |
June 1, 2011 | 1.66 |
Weighted average—2011 | 1.64 |
December 31, 2011 | 1.62 |
As of December 31, 2011, the subsidiary reports the following trial balance:
| Debits | Credits |
Cash | KQ 8,000 |
|
Accounts Receivable | 9,000 |
|
Equipment | 3,000 |
|
Accumulated Depreciation |
| KQ 600 |
Land | 5,000 |
|
Accounts Payable |
| 3,000 |
Notes Payable (due 2014) |
| 5,000 |
Common Stock |
| 10,000 |
Dividends Paid (6/1/11) | 4,000 |
|
Sales |
| 25,000 |
Salary Expense | 5,000 |
|
Depreciation Expense | 600 |
|
Miscellaneous Expenses | 9,000 |
|
Totals | KQ 43,600 | KQ 43,600 |
A corporation based in East Lansing, Michigan, Kingsfield uses the U.S. dollar as its reporting currency.
a. Assume that the subsidiary’s functional currency is the kumquat. Prepare a trial balance for it in U.S. dollars so that 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 consolidated financial statements can be prepared.
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