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

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