In: Accounting
Ealing Company began operations as a new subsidiary of
Fundamental Company, a U.S. Corporation, on January 2, 2018, by
issuing common stock for 180,000 foreign currency units (FCU).
Ealing immediately borrowed 35,000 FCU with a 10-year, 10% note,
interest payable annually on January 1. On the same date, Ealing
bought a building for 200,000 FCU. The building was to be
depreciated for 20 years on a straight-line basis with a residual
value of 40,000 FCU.
During the year, the building was rented for 9,000 FCU per month.
At year's end, all rent had been collected.
On May 1 a repair on the building of 15,000 FCU was completed and
paid for. Land for a parking lot was acquired for 30,000 FCU in
cash on June 1.
A dividend of 20,000 FCU was declared and paid on December 1.
Exchange rates for the year were as follows:
January 2, 2018 1 FCU = $.30
May 1, 2018 1 FCU = .37
June 1, 2018 1 FCU = .38
November 1, 2018 1 FCU = .41
December 1, 2018 1 FCU = .39
December 31, 2018 1 FCU = .35
average for 2018 1 FCU = .36
Fundamental company determined that the FCU was the functional
currency and translation using the current rate method was
appropriate for consolidation. Calculate the translation adjustment
for 2018. (You might remember that the translation adjustment uses
the net assets approach, not the net monetary assets approach.)