Question

The following account balances are for the Agee Company as of January 1, 2017, and December 31, 2017. All amounts are denominated in kroner (Kr).

	January 1, 2017			December 31, 2017
Accounts payable		(16,000	)		(27,500	)
Accounts receivable		53,000			103,000
Accumulated depreciation—buildings		(44,000	)		(49,000	)
Accumulated depreciation—equipment		0			(7,400	)
Bonds payable—due 2020		(63,000	)		(63,000	)
Buildings		133,000			104,500
Cash		59,000			10,400
Common stock		(68,000	)		(80,000	)
Depreciation expense		0			39,000
Dividends (10/1/17)		0			56,000
Equipment		0			63,000
Gain on sale of building		0			(8,400	)
Rent expense		0			20,900
Retained earnings		(54,000	)		(54,000	)
Salary expense		0			44,000
Sales		0			(158,000	)
Utilities expense		0			6,500

Additional Information

• Agee issued additional shares of common stock during the year on April 1, 2017. Common stock at January 1, 2017, was sold at the start of operations in 2010.

• Agee purchased buildings in 2011 and sold one building with a book value of Kr 23,500 on July 1 of the current year.

• Equipment was acquired on April 1, 2017.

Relevant exchange rates for 1 Kr were as follows:

2010	$	2.85
2011		2.65
January 1, 2017		2.95
April 1, 2017		3.05
July 1, 2017		3.25
October 1, 2017		3.35
December 31, 2017		3.45
Average for 2017		3.15

1. Assuming the U.S. dollar is the functional currency, what is the remeasurement gain or loss for 2017? The December 31, 2016, U.S. dollar-translated balance sheet reported retained earnings of $145,200, which included a remeasurement loss of $28,300.

2. Assuming the foreign currency is the functional currency, what is the translation adjustment for 2017? The December 31, 2016, U.S. dollar-translated balance sheet reported retained earnings of $162,250, and a cumulative translation adjustment of $9,650 (credit balance).

Answer 1

Answers:

a	Remeasurement	Gain	22,860
b	Translation Adjustment	Positive	76,160

Calculation:

a. Remeasurement Gain or Loss

To calculate the Remeasurement gain/ loss, first we need to calculate the monetary asset and changes to it. Then need to multiply it with the exchange rate corresponding to the date of happening of that event.

	KR	*	Exchange Rate	=	US$
Net monetary assets, 1/1/17	33,000	*	2.95	=	97,350
Increases in net monetary assets:
Issued common stock (4/1/17)	12,000	*	3.05	=	36,600
Sold building (7/1/17)	31,900	*	3.25	=	103,675
Sales (2017)	158,000	*	3.15	=	497,700
Decreases in net monetary assets:		*		=
Purchased equipment (4/1/17)	-63,000	*	3.05	=	(192,150)
Paid dividends (10/1/17)	-56,000	*	3.35	=	(187,600)
Rent expense (2017)	-20,900	*	3.15	=	(65,835)
Salary expense (2017)	-44,000	*	3.15	=	(138,600)
Utilities expense (2017)	-6,500	*	3.15	=	(20,475)
Net monetary assets, 12/31/17	44,500				130,665
Net monetary assets, 12/31/17 at current exchange rate	44,500	*	3.45	=	153,525
Remeasurement gain (credit)					(22,860)

Net monetary assets, 1/1/17 = (Cash + Accounts receivable) - (Accounts payable + Bonds payable—due 2020) = 59,000 + 53,000 - (16,000 + 63,000) = 33,000

Issued common stock = 80,000 - 68,000 = 12,000

Sold building = Book Value + Gain on sale = 23,500 + 8400 = 31,900

After calculating the Net monetary assets, 12/31/17, we need to multiply it with the exchange rate of December 31, 2017.

Net monetary assets, 12/31/17 at current exchange rate = 44,500 * 3.45 = 153,525

Net monetary assets, 12/31/17 = 130,665

Then we can calculate the Remeasurement gain

Remeasurement gain = 130,665 - 153,525 = - 22,860

b. Translation Adjustment

To calculate the ranslation Adjustment, first we need to calculate the Net assets and changes to it. Then need to multiply it with the exchange rate corresponding to the date of happening of that event.

	KR		Exchange Rate		US$
Net assets, 1/1/17	122,000	*	2.95	=	359,900
Increases in net assets:					-
Issued common stock (4/1/17)	12,000	*	3.05	=	36,600
Gain on Sale of Building (7/1/17)	8,400	*	3.25	=	27,300
Sales (2017)	158,000	*	3.15	=	497,700
Decreases in net assets:					-
Paid dividends (10/1/17)	(56,000)	*	3.35	=	(187,600)
Depreciation expense (2017)	(39,000)	*	3.15	=	(122,850)
Rent expense (2017)	(20,900)	*	3.15	=	(65,835)
Salary expense (2017)	(44,000)	*	3.15	=	(138,600)
Utilities expense (2017)	(6,500)	*	3.15	=	(20,475)
Net assets, 12/31/17	134,000				386,140
Net assets, 12/31/17 at current exchange rate	134,000	*	3.45	=	462,300
Translation Adjustment (Positive)					(76,160)

Net assets, 1/1/17 = (Common stock + Retained earnings) = (68,000+ 54,000) = 122,000

Issued common stock = 80,000 - 68,000 = 12,000

After calculating the Net assets, 12/31/17, we need to multiply it with the exchange rate of December 31, 2017.

Net assets, 12/31/17 at current exchange rate = 134,000 * 3.45 = 462,300

Net monetary assets, 12/31/17 = 386,140

Then we can calculate the Translation Adjustment

Translation Adjustment = 386,140 - 462,300= - 76,160