Question

A Belgium subsidiary's beginning and ending trial balances appear below:

Dr (Cr)

	January 1	December 31
Cash, receivables	€ 1,500	€ 1,200
Inventories	3,000	3,500
Plant & equipment, net	30,000	39,000
Liabilities	(18,500)	(27,200)
Capital stock	(4,000)	(4,000)
Retained earnings, beginning	(12,000)	(12,000)
Sales revenue	--	(15,000)
Cost of sales		9,500
Out-of-pocket selling & administrative expenses	--	4,000
Depreciation expense	--	1,000
Total	€ 0	€ 0

Exchange rates ($/€) are:

Beginning of year	$1.25
Average for year	1.22
End of year	1.20

The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

If the subsidiary's functional currency is the U.S. dollar, what is the remeasurement gain or loss for the year?

Select one:

A. $ 810 loss

B. $2,020 loss

C. $1,130 gain

D. $1,030 gain

Answer 1

Answer:

Balance Sheet
Particulars	Euro Amount   ()	Exchange Rate ($)	Amount ($)
Assets
Cash receivables	1200	1.20	1440
Inventories	3500	1.20	4200
Plant & equipment - Opening	29200	1.25	36500
Plant & eqiupment - Purchased	9800	1.23	12054
Total Assets	43700		54194
Liabiltiies	27200	1.20	32640
Capital stock	4000	1.25	5000
Retained earnings	12500	plug	16554
Total liabilities and shareholders equity	43700		54194

Statement of retained earnings
Particulars	Euro Amount ()	Exchange rate	Amount ($)
Opening Retained Earnings	12000	1.25	15000
Add: Net Income	500	plug	1554
Closing retained earnings	12500		16554

Statement of Net Income
Particulars	Euro Amount ()	Exchange Rate	Amount ($)
Revenues	15000	1.22	18300
Cost of sales
Opening stock	3000	1.25	3750
Add: Purchases	10000	1.22	12200
Less: Closing stock	(3500)	1.20	(4200)
Total cost of sales	9500		11750
Operating expenses	4000	1.22	4880
Depreciation
Opening Equipment	800	1.25	1000
Equipment Purchased	200	1.23	246
Remeasurment gain	-	plug	1130
Net Income	500		1554

Thus the answer is d) $1130 gain