Question

Rolfe Company (a U.S.-based company) has a subsidiary in Nigeria where the local currency unit is the naira (NGN). On December 31, 2019, the subsidiary had the following balance sheet (amounts are in thousands [000s]):

Cash	NGN	16,780		Notes payable	NGN	20,360
Inventory		11,800		Common stock		22,200
Land		4,180		Retained earnings		11,100
Building		41,800
Accumulated depreciation		(20,900	)
	NGN	53,660			NGN	53,660

The subsidiary acquired the inventory on August 1, 2019, and the land and building in 2013. It issued the common stock in 2011. During 2020, the following transactions took place:

2020
Feb.	1		Paid 8,180,000 NGN on the note payable.
May	1		Sold entire inventory for 17,800,000 NGN on account.
June	1		Sold land for 6,180,000 NGN cash.
Aug.	1		Collected all accounts receivable.
Sept.	1		Signed long-term note to receive 8,180,000 NGN cash.
Oct.	1		Bought inventory for 20,180,000 NGN cash.
Nov.	1		Bought land for 3,180,000 NGN on account.
Dec.	1		Declared and paid 3,180,000 NGN cash dividend to parent.
Dec.	31		Recorded depreciation for the entire year of 2,090,000 NGN.

The U.S dollar ($) exchange rates for 1 NGN are as follows:

2011	NGN 1	=	$	0.0066
2013	1	=		0.0060
August 1, 2019	1	=		0.0080
December 31, 2019	1	=		0.0082
February 1, 2020	1	=		0.0084
May 1, 2020	1	=		0.0086
June 1, 2020	1	=		0.0088
August 1, 2020	1	=		0.0092
September 1, 2020	1	=		0.0094
October 1, 2020	1	=		0.0096
November 1, 2020	1	=		0.0098
December 1, 2020	1	=		0.0100
December 31, 2020	1	=		0.0120
Average for 2020	1	=		0.0110

1. Assuming the NGN is the subsidiary's functional currency, what is the translation adjustment determined solely for 2020?

2. Assuming the U.S.$ is the subsidiary's functional currency, what is the remeasurement gain or loss determined solely for 2020?

(Input all amounts as positive. Enter amounts in whole dollars.)

a .Positive translation adjustment ？

b. Remeasurement gain ？

Thank you

Answer 1

Part A

Net asset balance = All assets - Liabilities = Cash + Inventory + Land + Building - Accum. Dep. - Notes Payable = 53,660 - 20,360 = 33,300*1000 = 33,300,000 * 0.0082 = 273,060 [rate from December 31]

May 1: Sold inventory 17,800,000 - Inventory (11,800*1000) = 17,800,000 - 11,800,000 =  6,000,000 * 0.0086 May 1 rate = 51,600

 Jun 1: Sold Land 6,180,000 - Land (4,180*1000) = 6,180,000-4,180,000 =  2,000,000 *0.0088 = 17,600

Nov. 1: -3,180,000*0.0100= - 31,800

Dec. 31: -2,090,000*0.0110 = - 22,990

Adding 273,060+51,600+17,600-31,800-22,990=  287,470

Adding 33,300,000+6,000,000+2,000,000-3,180,000-2,090,000 = 36,030,000 * 0.0120 = 432,360

432,360-287,470=144,890 ANSWER FOR PART A

Part B

Net liab=Notes Payable-Cash=(20,360-16,780)*1000= -3,580,000*0.082 (Dec 31 rate) = - 29,356

May 1. Sold inventory = 17,800,000 * 0.0086 (May 1 rate)= 153,080

June 1 Sold land: 6,180,000 * 0.0088 (Jun 1 rate) = 54,384

Oct. 1 Bought inventory: - 20,180,000 * 0.0096 (Oct. 1 rate) = -193,728

Nov. 1 Land: -3,180,000 * 0.0098 (Nov 1 rate) = -31,164

Dec. 1 Div: -3,180,000 * 0.0100 (Dec 1 rate) = -31,800

-29,356+153,080+54,384-193,728-31,164-31,800=-78,584

-3,580,000+17,800,000+6,180,000-20,180,000-3,180,000-3,180,000 = -6,140,000 * 0.0120 (Dec 31 rate) = -73,680

-73,680+78,584=4,904 ANSWER FOR PART B

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