Foreign currency translation



Problem 7.2 Name_________________________

On January 2, 2008 the Lowell Corporation invested 470,000 FC in a foreign subsidiary. The foreign subsidiary maintains its accounting records in Foreign Currency (FC) and uses the FIFO inventory method.

The foreign exchange rates of FC currency to US dollars were:

|January 2, 2008 – February 28, 2008 |1.21 |(1 FC unit = 1.21 US dollars) |

|March 1, 2008 - June 30, 2008 |1.20 | |

|July 1, 2008 - October 31, 2008 |1.19 | |

|November 1, 2008 – January 1, 2009 |1.18 | |

|2008 average |1.195 | |

|Fourth quarter 2008 average |1.183 | |

|January 2, 2009 - June 30, 2009 |1.17 | |

|July 1, 2009 – January 1, 2010 |1.16 | |

|2009 average |1.165 | |

|Fourth quarter 2009 average |1.16 | |

1. If the foreign subsidiary's functional currency is Foreign Currency, convert its December 31, 2008 account balances to US dollars.

| | |Conversion | |

|Account |FC |Rate |US $ |

|Cash |110,000 | | |

|Accounts Receivable |210,000 | | |

|Merchandise Inventory |410,000 | | |

|Equipment, 1/25/08 |850,000 | | |

|Accumulated Depreciation, Equipment |(85,000) | | |

|Accounts Payable |(310,000) | | |

|Notes Payable, 5 years |(610,000) | | |

|Common Stock |(40,000) | | |

|Additional Paid-in Capital, Common Stock |(430,000) | | |

|Retained Earnings, 1/1/08 |0 | | |

|Dividends, 9/15/08 |35,000 | | |

|Sales |(1,510,000) | | |

|Cost of Goods Sold |940,000 | | |

|Operating Expenses (Cash) |210,000 | | |

|Depreciation Expense, Equipment |85,000 | | |

|Interest Expense |55,000 | | |

|Income Taxes Expense |80,000 | | |

|Cumulative Translation Adjustment |0 | | |

|Remeasurement (Gain) or Loss |0 | | |

2. Calculate the 2008 translation adjustment or remeasurement gain or loss.

| | |Conversion | |

|Item |FC |Rate |US $ |

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3. If the foreign subsidiary's functional currency is Foreign Currency, convert its December 31, 2009 account balances to US dollars.

| | |Conversion | |

|Account |FC |Rate |US $ |

|Cash |170,000 | | |

|Accounts Receivable |255,000 | | |

|Merchandise Inventory |560,000 | | |

|Equipment, 1/25/08 |850,000 | | |

|Accumulated Depreciation, Equipment |(170,000) | | |

|Accounts Payable |(350,000) | | |

|Notes Payable, 5 years |(610,000) | | |

|Common Stock |(40,000) | | |

|Additional Paid-in Capital, Common Stock |(430,000) | | |

|Retained Earnings, 1/1/09 |(105,000) | | |

|Dividends, 9/15/09 |40,000 | | |

|Sales |(1,740,000) | | |

|Cost of Goods Sold |1,100,000 | | |

|Operating Expenses (Cash) |240,000 | | |

|Depreciation Expense, Equipment |85,000 | | |

|Interest Expense |55,000 | | |

|Income Taxes Expense |90,000 | | |

|Cumulative Translation Adjustment |0 | | |

|Remeasurement (Gain) or Loss |0 | | |

4. Calculate the 2009 translation adjustment or remeasurement gain or loss:

| | |Conversion | |

|Item |FC |Rate |US $ |

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5. If the foreign subsidiary's functional currency is US dollars, convert its December 31, 2008 account balances to US dollars.

| | |Conversion | |

|Account |FC |Rate |US $ |

|Cash |110,000 | | |

|Accounts Receivable |210,000 | | |

|Merchandise Inventory |410,000 | | |

|Equipment/ 1/25/08 |850,000 | | |

|Accumulated Depreciation, Equipment |(85,000) | | |

|Accounts Payable |(310,000) | | |

|Notes Payable, 5 years |(610,000) | | |

|Common Stock |(40,000) | | |

|Additional Paid-in Capital, Common Stock |(430,000) | | |

|Retained Earnings, 1/1/08 |0 | | |

|Dividends, 9/15/08 |35,000 | | |

|Sales |(1,510,000) | | |

|Cost of Goods Sold |940,000 | | |

|Operating Expenses (Cash) |210,000 | | |

|Depreciation Expense, Equipment |85,000 | | |

|Interest Expense |55,000 | | |

|Income Taxes Expense |80,000 | | |

|Cumulative Translation Adjustment |0 | | |

|Remeasurement (Gain) or Loss |0 | | |

6. Calculate the 2008 translation adjustment or remeasurement gain or loss:

| | |Conversion | |

|Item |FC |Rate |US $ |

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7. If the foreign subsidiary's functional currency is US dollars, convert its December 31, 2009 account balances to US dollars.

| | |Conversion | |

|Account |FC |Rate |US $ |

|Cash |170,000 | | |

|Accounts Receivable |255,000 | | |

|Merchandise Inventory |560,000 | | |

|Equipment, 1/25/08 |850,000 | | |

|Accumulated Depreciation, Equipment |(170,000) | | |

|Accounts Payable |(350,000) | | |

|Notes Payable, 5 years |(610,000) | | |

|Common Stock |(40,000) | | |

|Additional Paid-in Capital, Common Stock |(430,000) | | |

|Retained Earnings, 1/1/09 |(105,000) | | |

|Dividends, 9/15/09 |40,000 | | |

|Sales |(1,740,000) | | |

|Cost of Goods Sold |1,100,000 | | |

|Operating Expenses (Cash) |240,000 | | |

|Depreciation Expense, Equipment |85,000 | | |

|Interest Expense |55,000 | | |

|Income Taxes Expense |90,000 | | |

|Cumulative Translation Adjustment |0 | | |

|Remeasurement (Gain) or Loss |0 | | |

8. Calculate the 2009 translation adjustment or remeasurement gain or loss:

| | |Conversion | |

|Item |FC |Rate |US $ |

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