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		(4,000	)		(13,500	)
Accounts receivable		39,000			89,000
Accumulated depreciation—buildings		(30,000	)		(35,000	)
Accumulated depreciation—equipment		0			(6,000	)
Bonds payable—due 2020		(60,000	)		(60,000	)
Buildings		119,000			97,500
Cash		45,000			9,000
Common stock		(69,000	)		(81,000	)
Depreciation expense		0			25,000
Dividends (10/1/17)		0			42,000
Equipment		0			40,000
Gain on sale of building		0			(7,000	)
Rent expense		0			20,000
Retained earnings		(40,000	)		(40,000	)
Salary expense		0			30,000
Sales		0			(120,000	)
Utilities expense		0			10,000

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 16,500 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

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

a.	Remeasurement	gain	$17300
b.	Translation adjustment	positive	$67000

Explanation:

Part A

	KR	x	Exchange rate	US$
Net monetary assets, 1/1/17 (45000+39000)-(4000+60000)	20000	x	3.00	60000
Increases in net monetary assets:
Issued common stock (4/1/17) (81000-69000)	12000	x	3.10	37200
Sold building (7/1/17) (16500+7000)	23500	x	3.30	77550
Sales (2017)	120000	x	3.20	384000
Decreases in net monetary assets:
Purchased equipment (4/1/17)	(40000)	x	3.10	(124000)
Paid dividends (10/1/17)	(42000)	x	3.40	(142800)
Rent expense (2017)	(20000)	x	3.20	(64000)
Salary expense (2017	(30000)	x	3.20	(96000)
Utilities expense (2017)	(10000)	x	3.20	(32000)
Net monetary assets, 12/31/17	33500			99950
Net monetary assets, 12/31/17 at current exchange rate	33500	x	3.50	117250
Remeasurement gain (credit)				(17300)

Net monetary assets: (Cash + Accounts Receivable) - (Account Payable + Bonds Payable)

Cash proceeds from the sale of the building of KR21700 is determined by adding the Book value of the building sold of KR16,500 and the Gain on sale of building of KR7,000

Part B

	KR	x	Exchange rate	US$
Net assets, 1/1/17 (69000+40000)	109000	x	3.00	327000
Increases in net assets:
Issued common stock (4/1/17)	12000	x	3.10	37200
Gain on Sale of Building (7/1/17)	7000	x	3.30	23100
Sales (2017)	120000	x	3.20	384000
Decreases in net assets:
Paid dividends (10/1/17)	(42000)	x	3.40	(142800)
Depreciation expense (2017)	(25000)	x	3.20	(80000)
Rent expense (2017)	(20000)	x	3.20	(64000)
Salary expense (2017	(30000)	x	3.20	(96000)
Utilities expense (2017)	(10000)	x	3.20	(32000)
Net assets, 12/31/17	102000			356500
Net assets, 12/31/17 at current exchange rate	102000	x	3.50	423500
Translation adjustment (credit)				(67000)

Net assets: Common stock + Retained earnings

Selling a building at a gain of KR7,000 increases net assets by that amount.