Houston Corporation operates a branch operation in a foreign country. Although this branch deals in pesos, the U.S. dollar is viewed as its functional currency. Thus, a remeasurement is necessary to produce financial information for external reporting purposes. The branch began the year with 100,000 pesos in cash and no other assets or liabilities. However, the branch immediately used 60,000 pesos to acquire equipment. On May 1, it purchased inventory costing 30,000 pesos for cash that it sold on July 1 for 50,000 pesos cash. The branch transferred 10,000 pesos to the parent on October 1 and recorded depreciation on the equipment of 6,000 pesos for the year. Currency exchange rates for 1 peso follow:
January 1 | $0.16=1 peso |
May 1 | 0.18 =1 |
July 1 | 0.20 =1 |
October 1 | 0.21 =1 |
December 31 | 0.22 =1 |
Average for the year | 0.19 =1 |
What is the remeasurement gain to be recognized in the consolidated income statement?
a. $2,100.
b. $2,400.
c. $2,700.
d. $3,000.
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