Question

Saleh Corporation is a 90%-owned subsidiary of Parent Corporation, acquired for $270,000 on 1/1/X5. Investment cost was equal to book value and fair value. Saleh’s net income in 20X5 was $80,000, and Parent’s income, excluding its income from Saleh, was $90,000. Saleh’s income includes a $10,000 unrealized gain on land that cost $50,000 and was sold to Parent for $60,000.

Assume that Saleh sold the land in 20X7. Parent adjusts for this transaction in the equity accounts.

Required:

1. What entries would Parent make in 20X5 and 20X7?

2. Prepare the consolidation entries at 12/31/X5, 12/31/X6, and 12/31/X7.

3. Determination of exchange rates depends on factors causing fluctuations.

a. Explain why and its effect on US dollar

b. Distinguish between DER & IER.

4. Explain the differences between translation and re-measurement and its process.

Answer 1

A3)a)Exchange rates are subjected to fluctuations constantly since the demand and supply for currencies alter where appreciation of a currency demonstrates a boost in the result and vice versa. The US dollar plays a very important role in currency as it rules the whole world in terms of currency rates.

Factors Affecting Dollar Value

The methodology of determining dollar value trades can be divided into three groups as follows:

• Supply and demand factors
• Sentiment and market psychology
• Technical factors

Supply Vs. Demand for Driving Dollar Value

When the U.S. exports products or services, it creates a demand for dollars because customers need to pay for goods and services in dollars. Therefore they will have to convert their local currency into dollars by selling their own currency to buy dollars to make the payment. In addition, when the U.S. government or large American corporations issue bonds to raise capital that are then purchased by foreign investors, those payments will also have to be made in dollars. This also applies to the purchase of U.S. corporate stocks from non-U.S. investors, which would require the foreign investor to sell their currency to buy dollars in order to purchase those stocks.

These examples show how the U.S. creates more demand for dollars, and that in turn puts pressure on the supply of dollars, increasing the value of the dollar relative to the currencies being sold to buy dollars. On top of this, the U.S. dollar is considered a safe haven during times of global economic uncertainty, so the demand for dollars can often persist despite fluctuations in the performance of the U.S. economy.

Sentiment and Market Psychology of Dollar Value

In the case that the U.S. economy weakens and consumption slows due to increasing unemployment, for instance, the U.S. is confronted with the possibility of a sell-off, which could come in the form of returning the cash from the sale of bonds or stocks in order to return to their local currency. When foreign investors buy back their local currency, it has a dampening effect on the dollar.

Technical Factors that Impact the Dollar

Traders are tasked with gauging whether the supply of dollars will be greater or less than the demand for dollars. To help us determine this, we need to pay attention to any news or events that may impact the dollar's value. This includes the release of various government statistics, such as payroll data, GDP data and other economic information that can help us to determine whether there is strength or weakness in the economy.

In addition, we need to incorporate the views of larger players in the market, such as investment banks and asset management firms, to determine the general economic sentiment. Sentiment will often drive the market rather than the economic fundamentals of supply and demand. To add to this mix of prognostication, traders are tasked with analyzing historical patterns generated by seasonal factors such as support and resistance levels and technical indicators. Many traders believe that these patterns are cyclical and can be used to predict future price movements.

A3)b) Please provide full form of DER and IER

A4)

1.Translation is used to express financial results of a business unit in the parent company’s functional currency which means the currency in which the company conducts business transactions	1.Remeasurement is a process to measure financial results that are denominated or stated in another currency into the functional currency of the organization.
2.Translation is also known as the current rate method.	2.Remeasurement is also known as the temporal method.
3.Translation is conducted when the functional currency is different from the reporting currency.	3.Remeasurement is used to convert either local currency or foreign currency (or both) into functional currency.

4.Because revenues and expenses are assumed to occur uniformly over the period, they are translated using the average method for the reporting period

4.Monetary assets and liabilities are translated using the current rate.Nonmonetary items are translated at historical rate.Revenues and expenses are translated using the average rate