Problem

Watson Company has a subsidiary in the country of Alonza where the local currency unit is...

Watson Company has a subsidiary in the country of Alonza where the local currency unit is the kamel (KM). On December 31, 2010, the subsidiary has the following balance sheet:

Cash

KM 16,000

Notes payable (due 2012)

KM 19,000

Inventory

10,000

Common stock

20,000

Land

4,000

Retained earnings

10,000

Building

40,000

 

 

Accumulated depreciation

(21,000)

 

 

 

KM 49,000

 

KM 49,000

The subsidiary acquired the inventory on August 1, 2010, and the land and buildings in 2000. It issued the common stock in 1998. During 2011, the following transactions took place:

2011

 

Feb. 1

Paid 5,000 KM on the note payable.

May 1

Sold entire inventory for 15,000 KM on account.

June 1

Sold land for 5,000 KM cash.

Aug. 1

Collected all accounts receivable.

Sept. 1

Signed long-term note to receive 6,000 KM cash.

Oct. 1

Bought inventory for 12,000 KM cash.

Nov. 1

Bought land for 4,000 KM on account.

Dec. 1

Paid 3,000 KM cash dividend to parent.

Dec. 31

Recorded depreciation for the entire year of 2,000 KM

The exchange rates for 1 KM are as follows:

1998

1 KM = $0.24

2000

1 = 0.21

August 1, 2010

1 = 0.31

December 31, 2010

1 = 0.32

February 1, 2011

1 = 0.33

May 1, 2011

1 = 0.34

June 1, 2011

1 = 0.35

August 1, 2011

1 = 0.37

September 1, 2011

1 = 0.38

October 1, 2011

1 = 0.39

November 1, 2011

1 = 0.40

December 1, 2011

1 = 0.41

December 31, 2011

1 = 0.42

Average for 2011

1 = 0.37

a. If this is a translation, what is the translation adjustment determined solely for 2011?


b. If this is a remeasurement, what is the remeasurement gain or loss determined solely for 2011?

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