Question

Lancer, Inc. (a U.S.-based company), establishes a subsidiary in a foreign country on January 1, 2016. The following account balances for the year ending December 31, 2017, are stated in kanquo (KQ), the local currency:

Sales	KQ	150,000
Inventory (bought on 3/1/17)		75,000
Equipment (bought on 1/1/16)		50,000
Rent expense		10,000
Dividends (declared on 10/1/17)		20,000
Notes receivable (to be collected in 2020)		31,000
Accumulated depreciation—equipment		15,000
Salary payable		4,000
Depreciation expense		5,000

The following U.S.$ per KQ exchange rates are applicable:

January 1, 2016	$0.14
Average for 2016	0.15
January 1, 2017	0.19
March 1, 2017	0.20
October 1, 2017	0.22
December 31, 2017	0.23
Average for 2017	0.21

Lancer is preparing account balances to produce consolidated financial statements.

1. Assuming that the kanquo is the functional currency, what exchange rate would be used to report each of these accounts in U.S. dollar consolidated financial statements?

2. Assuming that the U.S. dollar is the functional currency, what exchange rate would be used to report each of these accounts in U.S. dollar consolidated financial statements?

(Round your answers to 2 decimal places.)

	Account Exchange Rate a. Sales Inventory Equipment Rent expense Dividends Notes receivable Accumulated depreciation-equipment Salary payable Depreciation expense b. Sales Inventory Equipment Rent expense Dividends Notes receivable Accumulated depreciation-equipment Salary payable Depreciation expense

Answer 1

Consolidated financial statements are those statements in which the financial statements of both the parent and all its subsidiaries are shown as a single entity

Translation adjustments are those adjustments which are made in the income statement to incorporate the fluctuations in the exchange rates

The exchange rate is the exchange of the currencies of the two countries There is a certain fee while changing the currency between two countries

Translated adjustments are made because of the fluctuations in the different currencies. This generally affects all the aspects in the income statement and the balance sheet like assets liabilities and equity. If the adjustment is positive then it means that the company is gaining from the currency fluctuations and vice versa.

Since the functional currency is the foreign currency, hence the translation will be done at the current rate method. Hence, all the assets and liabilities will be translated to the current rate. In the temporal method, the translation is made according to the timings the assets and liabilities were acquired.

	Account	Exchange Rate
a.	Sales	$ 0.21 A
	Inventory	$ 0.23 C
	Equipment	$ 0.23 C
	Rent expense	$ 0.21 A
	Dividends	$ 0.22 H
	Notes receivable	$ 0.23 C
	Accumulated depreciation-equipment	$ 0.23 C
	Salary payable	$ 0.23 C
	Depreciation expense	$ 0.21 A
b.	Sales	$ 0.21 A
	Inventory	$ 0.20 H
	Equipment	$ 0.14 H
	Rent expense	$ 0.21 A
	Dividends	$ 0.22 H
	Notes receivable	$ 0.23 C
	Accumulated depreciation-equipment	$ 0.14 H
	Salary payable	$ 0.23 C
	Depreciation expense	$ 0.14 H
	C= current exchange rate, A= average exchange rate, H= Historical exchange rate.