Question

In: Accounting

Huggins Co. was formed on January 1, 2017 at Mars Kingdom as a wholly owned foreign...

Huggins Co. was formed on January 1, 2017 at Mars Kingdom as a wholly owned foreign subsidiary of a U.S. corporation. Huggins' functional currency was the currency at Mars (FCU). The following transactions and events occurred during 2017:

Jan 1 Huggins issued common stock for 1,000,000 FCU.

June 30 Huggins paid dividends of 20,000 FCU.

Dec 31 Huggins reported net income of 80,000 FCU for the year.

Exchange rates for 2017 were:

Jan 1 $1 = .46 FCU

June 30 $1 = .44 FCU

Dec 31 $1 = .40 FCU

Weighted average rate for the year $1 = .42 FCU

What exchange rate should have been used in translating Huggins' revenues and expenses for 2017?

A. $1 = .46 FCU.
B. $1 = .42 FCU.
C. $1 = .44 FCU.
D. $1 = .40 FCU.
E. $1 = .43 FCU.

Expert Solution

As per the rules given for translating the financial statements of an entity from functional currency into the reporting currency for consolidation purposes of a business.

Income statement items. Translate revenues, expenses, gains, and losses using the exchange rate as of the dates when those items were originally recognized.

In current case the transaction will be recognized at exchage rate given for $(Doller) to Mars (FCU) of the date of transaction and at the end of year while translating the net income will remeasure in the $(Doller) by average.

		Amount
Date	Transaction	Mars (FCU)	Exchange Rate	Doller ($)
Jun-30	Paid dividends	20,000	0.44	8,800
Dec-31	Net Income	80,000	0.40	32,000
	Total Income	1,00,000		40,800

Exchage rate for tranalating = 40,800 / 1,00,000 = 0.408

Answer will be = D. $1 = .40 FCU

ekkarill92 answered 1 year ago

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $210,000 in...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $210,000 in cash. The equipment had originally cost $189,000 but had a book value of only $115,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method. Ackerman reported $310,000 in net income in 2018 (not including any investment income) while Brannigan reported $101,300. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $330,000 in...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $330,000 in cash. The equipment had originally cost $297,000 but had a book value of only $181,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method. Ackerman reported $430,000 in net income in 2018 (not including any investment income) while Brannigan reported $140,900. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $190,000 in...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $190,000 in cash. The equipment had originally cost $171,000 but had a book value of only $104,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method. Ackerman reported $470,000 in net income in 2018 (not including any investment income) while Brannigan reported $154,100. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $250,000 in...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $250,000 in cash. The equipment had originally cost $225,000 but had a book value of only $137,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method. Ackerman reported $350,000 in net income in 2018 (not including any investment income) while Brannigan reported $114,500. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which...

In January of 2019, a wholly owned subsidiary sold Equipment to the parent for a cash...

In January of 2019, a wholly owned subsidiary sold Equipment to the parent for a cash price of $122,500. The subsidiary had acquired the equipment at a cost of $140,000 and the estimated useful life when purchased was 10 years, and there was no salvage value. The subsidiary had depreciated the equipment for 4 years at the time of sale using the straight line method. The parent retained the depreciation policy of the subsidiary and depreciated the equipment over its...

USAco is a wholly-owned U.S. subsidiary of ForCo, a foreign corporation. USAco's only assets are cash...

USAco is a wholly-owned U.S. subsidiary of ForCo, a foreign corporation. USAco's only assets are cash of $400,000, accounts receivable of $400,000, and its U.S. manufacturing plant with a value of $1 million. In addition, USAco has carried a mortgage on the manufacturing plant of $600,000 for the last 10 years. ForCo sells its shares to a buyer for $1,800,000. Which of the following best describes the tax implications? Question 20 options: 1) The buyer does not have to withhold....

USAco, a domestic corporation, is a wholly-owned subsidiary of FORco, a foreign corporation. USAco's only assets...

USAco, a domestic corporation, is a wholly-owned subsidiary of FORco, a foreign corporation. USAco's only assets are cash of $200,000, accounts receivable of $200,000 and its U.S. manufacturing plant worth $500,000. USAco has no liabilities. Assume that there is no intangible value in USAco and that the manufacturing plant is a USRPI. During the current year, FORco sells all of its shares of USAco to an unrelated U.S.person. Is FORco's sale of stock in USAco subject to withholding under FIRPTA?...

On January 1, Poe Corp. sold a machine for $4,798,243 to Saxe Corp., its wholly-owned subsidiary....

On January 1, Poe Corp. sold a machine for $4,798,243 to Saxe Corp., its wholly-owned subsidiary. Poe paid $1.1 million for this machine, which had accumulated depreciation of $250,000 on the sale date. Poe estimated a $100,000 salvage value and depreciated the machine on the straight-line basis over 20 years, a policy that Saxe continued. In Poe's December 31 consolidated balance sheet, the accumulated depreciation of this machine should be shown on the consolidated balance sheet as:

McKinney Enterprises acquired Pottsboro, Inc. as a wholly-owned subsidiary on January 1, 2019 paying $1,750,000. The...

McKinney Enterprises acquired Pottsboro, Inc. as a wholly-owned subsidiary on January 1, 2019 paying $1,750,000. The $440,000 excess of cost over book value of Pottsboro’s net assets was partly attributable to a patent undervalued by $210,000. The patent has a 10-year life. The remaining excess is considered goodwill. The parent uses the cost method of pre-consolidation Equity investment bookkeeping. The separate financial statements of the two companies for 2022 are presented below. Neither company issued additional shares after the acquisition...

Atlantic Imports, a U.S. company, acquired a wholly-owned subsidiary, located in Portugal, on January 1, 2018...

Atlantic Imports, a U.S. company, acquired a wholly-owned subsidiary, located in Portugal, on January 1, 2018 for €200,000,000. The subsidiary’s functional currency is the euro. The balance sheet of the subsidiary at the date of acquisition was as follows: Assets Current assets € 30,000,000 Noncurrent assets, net 150,000,000 Total assets €180,000,000 Liabilities and Stockholders' Equity Liabilities € 60,000,000 Capital stock 80,000,000 Retained earnings 40,000,000 Total liabilities and stockholders' equity €180,000,000 Appropriate revaluations of the subsidiary’s assets at the date of...