Question

Adam starts a subsidiary operation in a foreign country on January 1, 2017. The country’s currency is the kumquat (KQ). To start this business, Adam invests 10,000 kumquats. Of this amount, it spends 3,000 kumquats immediately to acquire equipment later, on April 1, 2017, it also purchases land. All subsidiary operational activities occur at an even rate throughout the year. The currency exchange rates for the kumquat for this year follow:

January 1, 2017 $ 1.71
April 1, 2017 $ 1.59
June 1, 2017 $ 1.66
Weighted average-2017 $ 1.64
December 31, 2017 $ 1.62

As of December 31, 2017, the subsidiary reports the following trial balance:

                                                  Debits          Credits
Cash                                   KQ  8,000
Accouts recievable              KQ 9,000
Equipment                           KQ 3,000
Accumulated depreciation                              KQ 600
Land                                     KQ 5,000
Accounts payable                                          KQ 3,000
Notes payable (due in 2020)                          KQ 5,000
Common stock                                               KQ 10,000
Dividends declared (6/1/17) KQ 4,000
Sales                                                             KQ 25,000
Salary expense                    KQ 5,000
Depreciation expense          KQ   600
Miscellaneous expenses      KQ 9,000
Totals                                   KQ 43,600         KQ 43,600

A corporation based in Columbia, South Carolina, Adam uses the U.S. dollar as its reporting currency.

REQUIRED:

a. Assume that the subsidiary’s functional currency is the kumquat. Prepare a trial balance for it in U.S. dollar so that consolidated financial statements can be prepared.

b. Assume that the subsidiary’s functional currency is the U.S. dollar. Prepare a trial balance for it in U.S. dollars so that consolidated financial statements can be prepared.

Answer 1

Part-A Translation of Subsidiary Trial Balance
		Debits	Credits	Calculation
Cash		$12,960.00		8,000 KQ x 1.62
Accounts Receivable		$14,580.00		9,000 KQ x 1.62
Equipment		$4,860.00		3,000 KQ x 1.62
Accumulated Depreciation			$972.00	600 KQ x 1.62
Land		$8,100.00		5,000 KQ x 1.62
Accounts Payable			$4,860.00	3,000 KQ x 1.62
Notes Payable			$8,100.00	5,000 KQ x 1.62
Common Stock			$17,100.00	10,000 KQ x 1.71
Dividends Paid		$6,640.00		4,000 KQ x 1.66
Sales			$41,000.00	25,000 KQ x 1.64
Salary Expense		$8,200.00		5,000 KQ x 1.64
Depreciation Expense		$984.00		600 KQ x 1.64
Miscellaneous Expense		$14,760.00		9,000 KQ x 1.64
		$71,084.00
Translation Adjustment (negative)		$948.00
		$72,032.00	$72,032.00
Calculation of Translation Adjustment
Particular		Amount		Calculation
Common stock issued.		17100		10,000   KQx 1.71
Sales.		41000		25,000   KQx 1.64
Decrease in net assets:		-6640
Dividends paid..		-6640		( 4,000) KQx 1.66
Salary expense..		-8200		( 5,000) KQx 1.64
Depreciation expense.		-984		(    600) KQx 1.64
Miscellaneous expense .		-14760		( 9,000) KQx 1.64
Net assets, 12/31.		27516		16,400* KQ
Net assets, 12/31 at Current Exchange Rate		26568		16,400   KQx 1.62
Translation adjustment (negative)		948
Part-B Remeasurement of Subsidiary Trial Balance
		Debits	Credits	Calculation
Cash		$12,960.00		8000 KQ x 1.62
Accounts Receivable		$14,580.00		9000 KQ x 1.62
Equipment		$5,130.00		3000 KQ x 1.71
Accumulated Depreciation			$1,026.00	600 KQ x 1.71
Land		$7,950.00		5000 KQ x 1.59
Accounts Payable			$4,860.00	3000 KQ x 1.62
Notes Payable			$8,100.00	5000 KQ x 1.62
Common Stock			$17,100.00	10000 KQ x 1.71
Dividends Paid		$6,640.00		4000 KQ x 1.66
Sales			$41,000.00	25000 KQ x 1.64
Salary Expense		$8,200.00		5000 KQ x 1.64
Depreciation Expense		$1,026.00		600 KQ x 1.71
Miscellaneous Expense		$14,760.00		9000 KQ x 1.64
		$71,246.00	$72,086.00
Remeasurement loss (debit)		$840.00
		$72,086.00	$72,086.00
					Calculation of Remeasurement Loss
Detail		Amount		Calculation
Common stock issued		$17,100.00		10000 KQ x 1.71
Sales		$41,000.00		25000 KQ x 1.64
Decrease in net monetary assets:
Acquired equipment		-$5,130.00		(3,000) KQ x 1.71
Acquired land		-$7,950.00		(5,000) KQ x 1.59
Dividends paid		-$6,640.00		(4,000) KQ x 1.66
Salary expense		-$8,200.00		(5,000) KQ x 1.64
Miscellaneous expense		-$14,760.00		(9,000) KQ x 1.64
Net monetary assets, 12/31		$15,420.00		9,000* KQ
Net monetary assets, 12/31
at current exchange rate		$14,580.00		9000 KQ x 1.62
Remeasurement loss (debit)		$840.00
* This amount can be verified as ending assets (17,000 KQ) minus ending liabilities (8,000 KQ) – net assets, 12/31 = 9,000 KQ.