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		(18,000	)		(24,000	)
Accounts receivable		35,000			79,000
Accumulated depreciation—buildings		(20,000	)		(25,000	)
Accumulated depreciation—equipment		0			(5,000	)
Bonds payable—due 2020		(50,000	)		(50,000	)
Buildings		118,000			97,000
Cash		35,000			8,000
Common stock		(70,000	)		(80,000	)
Depreciation expense		0			15,000
Dividends (10/1/17)		0			32,000
Equipment		0			30,000
Gain on sale of building		0			(6,000	)
Rent expense		0			14,000
Retained earnings		(30,000	)		(30,000	)
Salary expense		0			20,000
Sales		0			(80,000	)
Utilities expense		0			5,000

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 16,000 on July 1 of the current year.

• Equipment was acquired on April 1, 2017.

Relevant exchange rates for 1 Kr were as follows:

2010	$	2.40
2011		2.20
January 1, 2017		2.50
April 1, 2017		2.60
July 1, 2017		2.80
October 1, 2017		2.90
December 31, 2017		3.00
Average for 2017		2.70

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

Solution:

a)

Remeasurement gain

Description	KR	exchange rate	US$
net monetary assets(1/1/17)	2,000	2.5	5000
Increase in net monetary assets:
Issued common stock(4/1/17)	10,000	2.6	26,000
Sold building(7/1/17)	22,000	2.8	61,600
Sales(2017)	80,000	2.7	216,000
Decrease in net monetary assets:
Purchased equipment(4/1/17)	(30,000)	2.6	78,000
Paid dividends(10/1/17)	(32,000)	2.9	92,800
Rent exp(2017)	(14,000)	2.6	36,400
Salary exp(2017)	(20,000)	2.6	52,000
Utilities exp(2017)	(5,000)	2.6	13,000
Net monetary assets(12/31/17)	13,000		36,400
Net monetary assets at current exchange rate	13,000	3.0	39,000
Remeasurememt gain(Credit)			(2,600)

Note:

Net monetary assets =(Cash+account rec)-(Account payable + bond payable)

b)

Translation adjustment

Description	KR	exchange rate	US$
Net assets	100,000	2.5	250,000
Increase in net monetary assets:
Issued common stock(4/1/17)	10,000	2.6	26,000
gain on sale of building(7/1/17)	6,000	2.8	16,800
Sales(2017)	80,000	2.7	216,000
Decrease in net monetary assets:
Depreciation expense(2017)	(15,000)	3.0	45,000
Paid dividends(10/1/17)	(32,000)	2.9	92,800
Rent exp(2017)	(14,000)	2.6	36,400
Salary exp(2017)	(20,000)	2.6	52,000
Utilities exp(2017)	(5,000)	2.6	13,000
Net assets(12/31/17)	110,000		269,6000
Net assets at current exchange rate	110,000	3.0	330,000
translation adjustment			60,400

Note:Net assets=Common stock + retained earnings