Q#9 On December 18, 2017, Stephanie Corporation acquired 100 percent of a Swiss company for 4.0...

Q#9


Cash	CHF	817,000
Inventory		1,317,000
Property, plant & equipment		4,017,000
Notes payable		(2,134,000	)

Stephanie prepares consolidated financial statements on December 31, 2017. By that date, the Swiss franc has appreciated to $1.10 = CHF 1. Because of the year-end holidays, no transactions took place prior to consolidation.

Determine the translation adjustment to be reported on Stephanie’s December 31, 2017, consolidated balance sheet, assuming that the Swiss franc is the Swiss subsidiary’s functional currency. What is the economic relevance of this translation adjustment?

Determine the remeasurement gain or loss to be reported in Stephanie’s 2017 consolidated net income, assuming that the U.S. dollar is the functional currency. What is the economic relevance of this remeasurement gain or loss?

a	transalation adjustment
b

Please show your calculations, thanks.

Solutions

Expert Solution

(a). Translation adjustment to be reported on Stephanie’s December 31, 2017, consolidated balance sheet;

Items	CHF	Translation rate	US ($)
Assets;
Cash	817000	1.10	898700
Inventory	1317000	1.10	1448700
Fixed assets	4017000	1.10	4418700
Total assets	6151000		6766100

Liabilities;
Notes payable	2134000	1.10	2347400
Owner’s equity (6151000 – 2134000)	4017000	1.00	4017000
Translation adjustment (4017000 * 0.10)			401700
Total liabilities	6151000		6766100

(b). Remeasurement gain or loss to be reported on Stephanie’s December 31, 2017, consolidated balance sheet;

Items	CHF	Translation rate	US ($)
Assets;
Cash	817000	1.10	898700
Inventory	1317000	1.00	1317000
Fixed assets	4017000	1.00	4017000
Total assets	6151000		6232700

Liabilities;
Notes payable	2134000	1.10	2347400
Owner’s equity (6151000 – 2134000)	4017000	1.00	4017000
Remeasurement loss (6232700 – 2347400 – 4017000)			(131700)
Total liabilities	6151000		6232700

ekkarill92 answered 11 months ago

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