Question

Lancer, Inc. (a U.S.-based company), establishes a subsidiary in a foreign country on January 1, 2016. The following account balances for the year ending December 31, 2017, are stated in kanquo (KQ), the local currency: Sales KQ 190,000 Inventory (bought on 3/1/17) 95,000 Equipment (bought on 1/1/16) 58,000 Rent expense 12,000 Dividends (declared on 10/1/17) 22,000 Notes receivable (to be collected in 2020) 35,000 Accumulated depreciation—equipment 17,400 Salary payable 4,800 Depreciation expense 5,800 The following U.S.$ per KQ exchange rates are applicable: January 1, 2016 $0.18 Average for 2016 0.19 January 1, 2017 0.23 March 1, 2017 0.24 October 1, 2017 0.26 December 31, 2017 0.27 Average for 2017 0.25 Lancer is preparing account balances to produce consolidated financial statements. Assuming that the kanquo is the functional currency, what exchange rate would be used to report each of these accounts in U.S. dollar consolidated financial statements? Assuming that the U.S. dollar is the functional currency, what exchange rate would be used to report each of these accounts in U.S. dollar consolidated financial statements? (Round your answers to 2 decimal places.)

Answer 1

The Foregin currency Items(from Kanquo Currency to US $) should be reported as below in case Kanquo is the functional Currency:

S No	Particulars	Amount(In KQ)	Conversion Rate Adopted	Rate of Conversion	Amount (in US $) after Convertion
1	Sales	1,90,000	Average Rate	0.25	47,500
2	Inventory	95,000	Closing Rate	0.27	25,650
3	Equipment	58000	Purchase Rate*	0.18	10,440
4	Rent Expenses	12,000	Average Rate**	0.25	3,000
5	Dividend	22,000	Not Applicable	Dividend declared after balance sheet date.So conversion rate not required.	NIL
6	Note Receivable	35,000	Closing Rate	0.27	9,450
7	Accumulated Depreciation	17,400	Asset Purchase Rate*	0.18	3,132
8	Salary Payable	4,800	Closing Rate	0.27	1,296
9	Depreciation	5,800	Asset Purchase Rate	0.18	1,044

* Fixed Assets ,accumulated depreciation and depreciation should be reported by using Conversion rate on the purchase date.

** It is assumed that rent expenses is related to whole year which is paid on monthly basis so it is reported by using Average rate.

B)In case US $  is the functional Currency it is not required to change the currency by using exchange rate becasue both functional currency and reporting currency is same.