Computation of Gain or Loss on Sale of Asset by Foreign Subsidiary
On December 31, 20X2, your company’s Mexican subsidiary sold land at a selling price of 3,000,000 pesos. The land had been purchased for 2,000,000 pesos on January 1, 20X1, when the exchange rate was 10 pesos to 1 U.S. dollar. The exchange rate for 1 U.S. dollar was 11 pesos on December 31, 20X1, and 12 pesos on December 31, 20X2. Assume that the subsidiary had no other assets and no liabilities during the two years that it owned the land.
Required
a. Prepare all entries regarding the purchase and sale of the land that would be made on the books of the Mexican subsidiary whose reporting currency is the Mexican peso.
b. Determine the amount of the gain or loss on the transaction that would be reported on the subsidiary’s remeasured statement of income in U.S. dollars, assuming the U.S. dollar is the functional currency. Determine the amount of the remeasurement gain or loss that would be reported on the remeasured statement of income in U.S. dollars.
c. Determine the amount of the gain or loss on the transaction that would be reported on the subsidiary’s translated statement of income in U.S. dollars, assuming the Mexican peso is the functional currency. Determine the amount of the other comprehensive income that would be reported on the consolidated statement of other comprehensive income for 20X2.
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