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		(15,000	)		(25,000	)
Accounts receivable		54,000			104,000
Accumulated depreciation—buildings		(45,000	)		(50,000	)
Accumulated depreciation—equipment		0			(7,500	)
Bonds payable—due 2020		(64,000	)		(64,000	)
Buildings		134,000			105,000
Cash		60,000			10,500
Common stock		(69,000	)		(82,000	)
Depreciation expense		0			40,000
Dividends (10/1/17)		0			57,000
Equipment		0			64,000
Gain on sale of building		0			(8,500	)
Rent expense		0			21,500
Retained earnings		(55,000	)		(55,000	)
Salary expense		0			45,000
Sales		0			(162,000	)
Utilities expense		0			7,000

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 1,500 on July 1 of the current year.

Equipment was acquired on April 1, 2017.

Relevant exchange rates for 1 Kr were as follows:

2010	$	2.90
2011		2.70
January 1, 2017		3.00
April 1, 2017		3.10
July 1, 2017		3.30
October 1, 2017		3.40
December 31, 2017		3.50
Average for 2017		3.20

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.

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

Answer :-

1) Remeasurement Gain or Loss

	KR	Exchange Rate	US $
Net Monetary Assets 1 Jan 2017	35,000	$3.00	$105,000
Increases in Net Monetary Assets :-
Issued Common Stock 1 April 2017	13,000	$3.10	$40,300
Sold Building 1 July 2017	10,000	$3.30	$33,000
Sales 2017	162,000	$3.20	$518,400
Decreases in Net Monetary Assets
Purchased Equipment 1 April 2017	(64,000)	$3.10	($198,400)
Paid Dividends 1 Oct 2017	(57,000)	$3.40	($193,800)
Rent Dividends 2017	(21,500)	$3.20	($68,800)
Salary Expense 2017	(45,000)	$3.20	($144,000)
Utilities Expense 2017	(7,000)	$3.20	($22,400)
Net Monetary Assets 31 Dec 2017	25,500		$69,300
Net Monetary Assets 31 Dec 2017 at Current Exchange Rate	25,500	$3.50	$89,250
Remeasurement Gain (Credit)			($19,950)
(Net Monetary Assets - Net Monetary Assets at Current Exchange Rate)

Net Monetray Assets as on 1st Jan 2017 = (Cash + Accounts Receivable) - (Accounts Payable + Bonds Payable)

= (60,000 + 54,000) - (15,000 + 64,000) = 35,000

Building Sold = Gain on Sale of Building + Book Value of Building Sold

= 8,500 + 1,500 = 10,000

Net Monetary Assets as on 31st Dec 2017 = Net Monetary Assets as on 1st Jan 2017 + Increase in Net Monetary Assets - Decrease in Net Monetary Assets

= 25,500

As per Calculation

Net Monetary Assets on 31st Dec 2017 (US $) = $69,300

But according to Exchange Rate

Net Monetary Assets on 31st Dec 2017 at Exchange Rate (US $) = $89,250

Hence there is a gain of $19,950