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 euro, what is the translation gain or loss for the year?

Select one:

A. $2,020 loss

B. $1,030 gain

C. $1,130 gain

D. $ 810 loss

Answer 1

Correct option is D :$ 810 loss

Explanation:

Calculating Subsidiary's functional currency is the euro, what is the translation gain or loss for the year

Trial Balance	Dec-31
	€            -	Applicable Exchange rate		$
Cash, receivables	€     1,200	1.2	Closing	$    1,440
Inventories	€     3,500	1.2	Closing	$    4,200
Plant & equipment, net	€   39,000	1.2	Closing	$ 46,800
Liabilities	€ (27,200)	1.2	Closing	$(32,640)
Capital stock	€   (4,000)	1.25	Beginning	$   (5,000)
Retained earnings, beginning	€ (12,000)	1.25	Beginning	$(15,000)
Sales revenue	€ (15,000)	1.22	Average	$(18,300)
Cost of sales	€     9,500	1.22	Average	$ 11,590
Out-of-pocket selling & administrative expenses	€     4,000	1.22	Average	$    4,880
Depreciation expense	€     1,000	1.22	Average	$    1,220
Total	€            -	Foreign Exchange gain or loss	$      (810)

Correct option is D :$ 810 loss

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