Question

A Belgium subsidiary's beginning and ending trial balances appear below:

Dr (Cr)

	January 1	December 31
Cash, receivables	€ 1,500	€ 1,200
Inventories	3,000	3,500
Plant & equipment, net	30,000	39,000
Liabilities	(18,500)	(27,200)
Capital stock	(4,000)	(4,000)
Retained earnings, beginning	(12,000)	(12,000)
Sales revenue	--	(15,000)
Cost of sales		9,500
Out-of-pocket selling & administrative expenses	--	4,000
Depreciation expense	--	1,000
Total	€ 0	€ 0

Exchange rates ($/€) are:

Beginning of year	$1.25
Average for year	1.22
End of year	1.20

The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

If the subsidiary's functional currency is the U.S. dollar, what is the remeasurement gain or loss for the year?

	A.	$1,030 gain
	B.	$1,130 gain
	C.	$2,020 loss
	D.	$ 810 loss

Answer 1

FINANCIAL POSITION AS ON 1 JAN

LIABILITIES ASSETS

LIABILITIES 18500   CASH RECEIVABLES 1500

CAPITAL STOCK 4000 INVENTORY 3000

RETAINED EARNINGS 12000 PLANT EQUIPMENT 30000

     

34500    34500    PROFIT AND LOSS ACCOUNT FOR THE YEAR

OPENING STOCK+PURCHASES -CLOSING STOCK=COST OF SALE

3000+PURCHASES-3500=9500

PURCHASE=9500+3500-3000=10000

CALCULATION OF PROFIT

SALE -COST OF SALE=15000-9500=GROSS PROFIT=500

PROFIT AND LOSS ACCOUNT

TO OUT OF POCKET EXP. 4000 BY GROSS PROFIT 5500

TO DEPRICIATION 1000

TO NET PROFIT 500

           

9500       9500      

BALANCE SHEET AT THE END OF YEAR

LIABILITIES ASSETS

LIABILITIES 27200   CASH RECEIVABLES 1200

CAPITAL STOCK 4000 INVENTORY 3500

RETAINED EARNING 12000+500   PLANT EQUIPMENT 39000

  

43700 43700