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25. (15 minutes) (Determine the amounts at which foreign currency balances are
reported on a foreign subsidiary’s trial balance and in the parent’s
consolidated financial statements)
a. Remeasurement of Swiss franc (CHF) balances into Israeli shekels (ILS)
to report on the Israeli subsidary’s trial balance.
December 31, 2015 CHF Exchange Rate ILS*
Interest expense 25,000 x 3.95 A = 98,750
b. Translation of remeasured Swiss franc (CHF) balances into U.S. dollars
(USD) to report in the U.S. parent’s consolidated financial statements.
December 31, 2015 ILS Exchange Rate USD**
Interest expense 98,750 x 0.27 A = 26,662.50
statements
26. (30 minutes) (Prepare financial statements for a foreign subsidiary and then
translate them into U.S. dollars)
Fenwicke Company Subsidiary
Income Statement
LCU U.S. Dollars
Rent revenue 60,000 x $1.90 A = $114,000
Interest expense (10,000) x $1.90 A = (19,000)
* Repair expense is the only expense not incurred evenly throughout the
year.
Statement of Retained Earnings
LCU U.S. Dollars
Retained earnings, 1/1 -0- -0-
Net income 32,000 (above) $61,000
Balance Sheet
Cash 41,000x $1.80 C = $ 73,800
Accounts receivable 10,000x $1.80 C = 18,000
Building 140,000x $1.80 C = 252,000
Accumulated depreciation (14 ,000)x $1.80 C = (25 ,200)
Total assets 177 ,000 $318 ,600
Interest payable 10,000x $1.80 C = $ 18,000
Total liabilities and equities 177 ,000 $318 ,600
Computation of Translation Adjustment
Beginning net assets -0- -0-
Increase in net assets:
Issued common stock 40,000 x $2.00 = $ 80,000
Net income 32,000 (above) 61,000
27. (30 minutes) (Prepare a statement of cash flows for a foreign subsidiary and then translate
it into U.S. dollars)
Fenwicke Company Subsidiary
Statement of Cash Flows
LCU U.S. Dollars
Operating Activities:
Net income 32,000 (from prob 26)
plus: depreciation 14,000 x $1.90 A = 26,600
less: increase in accounts receivable (10,000) x $1.90 A = (19,000)
plus: increase in interest payable 10 ,000 x $1.90 A = 19 ,000
Cash flow from operations 46 ,000 87 ,600
Investing Activities:
135 ,000 271 ,000
Increase in cash 41,000 78,600
Effect of exchange rate change on cash (4,800)
Cash, 1/1 -0- -0-
Cash, 12/31 41 ,000 x $1.80 C = $ 73 ,800
28. (25 minutes) (Compute translation adjustment and remeasurement gain/loss)
a. Translation—only changes in net assets have an impact on the computation of the
translation adjustment.
Net asset balance 1/1 KM30,000 x $.32 = $ 9,600
Increases in net assets (income):
Net asset balance 12/31
at current exchange rate KM31 ,000 x $.42 = (13 ,020)
Translation adjustment—positive $(3 ,340)
b. Remeasurement—only changes in net monetary assets and liabilities have an
impact on the computation of the remeasurement gain.
Beginning net monetary
liability position KM (3,000) x $.32 = $ ( 960)
Decreases in monetary assets:
Bought inventory 10/1 (12,000) x $.39 = (4,680)
Bought land 11/1 (4,000) x $.40 = (1,600)
Note: The purchase of land on account did not result in a decrease in
monetary assets, rather an increase in monetary liabilities. Payment on the
note payable and collection of accounts receivable do not affect the net
monetary liability position.
29. (20 minutes) (Compute translation adjustment and remeasurement gain/loss)
a. The translation adjustment is based on changes in the net assets of the
subsidiary.
Net assets, 1/1 90,000
LCU x $0.35 = $31,500
Changes in net assets:
LCU $37,710
Net assets, 12/31 at
current exchange rate 108 ,000
LCU x $0.41 = 44,280
Translation adjustment (positive) $(6 ,570)
b. The remeasurement gain or loss is based on changes in the net monetary
assets of the subsidiary.
Incurred expenses (27 ,000)
LCU x $0.37 = (9,990)
Net monetary assets, 12/31 38 ,000
LCU $13,210
Net monetary assets, 12/31 at
current exchange rate 38 ,000
LCU x $0.41 = 15,580
30. (10 minutes) (Determine the appropriate exchange rate under the current rate
method [translation] and temporal method [remeasurement])
(a) Current Rate Method (b) Temporal Method
Account Translation Remeasurement
Sales $0.20 A $0.20 A
Inventory $0.22 C $0.19 H
Equipment $0.22 C $0.13 H
Rent expense $0.20 A $0.20 A
C = current exchange rate, A = average exchange rate, H = Historical
exchange rate
31. (30 minutes) (Determine translation adjustment; prepare journal entries for forward
contract hedge of balance sheet exposure; determine amount to be reported in accumulated
other comprehensive income)
a. Net assets, 1/1 (132,000 – 54,000) 78,000 kitesx $0.80 = $62,400
Change in net assets:
Net assets, 12/31 94 ,000 kites $74,720
Net assets at current
exchange rate, 12/31 94 ,000 kitesx $0.75 = 70 ,500
Translation adjustment (negative) $ 4 ,220
b. Forward contract journal entries
10/1 No entry
12/31 Forward Contract................................... 2,000
Translation Adjustment (positive). . 2,000
(To record the change in the value of the forward contract as
an adjustment to the translation adjustment)
Foreign Currency (kites).................. 150,000
Forward Contract............................. 2,000
(To record delivery of 200,000 kites, receipt of $152,000, and
close the forward contract account.)
$2,000).
32. (45 minutes) (Translation and remeasurement of foreign subsidiary trial
balance)
a. Translation of Subsidiary Trial Balance
Debits Credits
Cash…………………………………. 8,000 KQ x 1.62$12,960
Accounts Receivable…………….. 9,000 KQ x 1.62 14,580
Notes Payable…………………….. 5,000 KQ x 1.62 8,100
Common Stock…………………… 10,000 KQ x 1.71 17,100
Dividends……….…………………. 4,000 KQ x 1.66 6,640
Sales………………………………… 25,000 KQ x 1.64 41,000
Salary Expense…………………… 5,000 KQ x 1.64 8,200
Depreciation Expense…………… 600 KQ x 1.64 984
$72,032 $72,032
Calculation of Translation Adjustment
Net assets, 1/1………………………….. -0- -0-
Increase in net assets:
Common stock issued………………. 10,000 KQx 1.71 $17,100
Sales……………………………………. 25,000 KQx 1.64 41,000
Decrease in net assets:
Net assets, 12/31………………………. 16 ,400* KQ $27,516
Net assets, 12/31 at
current exchange rate……………. 16 ,400 KQx 1.62 26 ,568
Translation adjustment (negative) $ 948
* This amount can be verified as ending assets (24,400 KQ) minus ending
liabilities (8,000 KQ) – net assets, 12/31 = 16,400 KQ.
32. (continued)
b. Remeasurement of Subsidiary Trial Balance
Debits Credits
Cash 8,000 KQ x 1.62 $12,960
Accounts Receivable 9,000 KQ x 1.62 14,580
Notes Payable 5,000 KQ x 1.62 8,100
Common Stock 10,000 KQ x 1.71 17,100
Dividends 4,000 KQ x 1.66 6,640
Sales 25,000 KQ x 1.64 41,000
Salary Expense 5,000 KQ x 1.64 8,200
Depreciation Expense 600 KQ x 1.71 1,026
Calculation of Remeasurement Loss
Net monetary assets, 1/1 -0- -0-
Increase in net monetary assets:
Common stock issued 10,000
KQ x 1.71 $17,100
Sales 25,000
Dividends (4,000) KQ x 1.66
(6,640)
Salary expense (5,000) KQ x 1.64
(8,200)
Miscellaneous expense (9 ,000) KQ x 1.64 (14 ,760)
* This amount can be verified as ending assets (17,000 KQ) minus ending
liabilities (8,000 KQ) – net assets, 12/31 = 9,000 KQ.
33. (30 minutes) (Translate financial statements of a foreign subsidiary)
LIVINGSTON COMPANY
Income Statement
For the Year Ending December 31, 2015
Goghs Ex Rate
Cod
e U.S. Dollars
Sales 270,000 1.59 A 429,300
Cost of goods sold (155,000) 1.59 A (246,450)
Net income 71,000 114,190
Statement of Retained Earnings
For the Year Ending December 31, 2015
Goghs Ex Rate
Cod
e U.S. Dollars
Retained earnings, 1/1 216,000 given 395,000
Balance Sheet
December 31, 2015
Goghs Ex Rate
Cod
e U.S. Dollars
Assets
Cash 44,000 1.54 C 67,760
Receivables 116,000 1.54 C 178,640
Inventory 58,000 1.54 C 89,320
Retained earnings, 12/31 261,000
abov
e 467,330
Translation adjustment (131,710)
Total liabilities and equities 557,000 856,260
33. (continued)
Calculation of Translation Adjustment:
Goghs Ex Rate
Cod
e U.S. Dollars
Net assets, 1/1 336,000 1.67 BOY 561,120
Net income 71,000 above 114,190
Dividends (26,000) above (41,860)
Net assets, 12/31 381,000 633,450
Code: A = average; C = current; H = historical; BOY = beginning of year
34. (35 minutes) (Compute remeasurement gain/loss and translation adjustment)
a. Remeasurement Gain or Loss
Exchange
KR Rate US$
Net monetary assets, 1/1/15* 35,000
x $3.00 = $105,000
Increases in net monetary assets:
Issued Common Stock (4/1/15) 13,000
x $3.10 = 40,300
Sold Building** (7/1/15) 10,000
x $3.30 = 33,000
Sales (2015) 162,000
x $3.20 = 518,400
Decreases in net monetary assets:
Purchased Equipment (4/1/15) (64,000)
Salary Expense (2015) (45,000)
x $3.20 = (144,000)
Utilities Expense (2015) (7 ,000)
x $3.20 = (22,400)
Net monetary assets, 12/31/15 25 ,500
$69,300
Net monetary assets, 12/31/15 at
* Net monetary assets: (Cash + Accounts Receivable) - (Account Payable +
Bonds Payable)
** Cash proceeds from the sale of the building of KR10,000 is determined by
adding the Book value of the building sold of KR1,500 and the Gain on
sale of building of KR 8,500.
b. Translation Adjustment
Exchange
KR Rate US$
Net assets, 1/1/15* 124,000
x $3.00 = $372,000
Increases in net monetary assets:
Decreases in net monetary assets:
Paid Dividends (10/1/15) (57,000)
x $3.40 = (193,800)
Depreciation expense (2015) (40,000)
x $3.20 =(128,000)
Rent Expense (2015) (21,500)
x $3.20 = (68,800)
Net monetary assets, 12/31/15 at
current exchange rate 137 ,000
x $3.50 = 479,500
Translation adjustment (credit) $ (77 ,750)
* Net assets: Common stock + Retained earnings
** Selling a building at a gain of KR 8,500 increases net assets by that
amount.
35. (90 minutes) (Remeasure non-functional currency accounts into foreign
functional currency and then translate foreign functional currency financial
statements into U.S. dollars)
a. Remeasurement of Mexican Operations
Canadian Dollars
Pesos Debit Credit
Accounts payable 49,000
17,150
Accumulated depreciation 19,000
4,750
Building and equipment 40,000
6,900
Inventory (ending
—income statement) 28,000
9,520
Inventory (ending—balance sheet) 28,000
9,520
Purchases 68,000
Sales 124,000
42,160
Main o(ce 30,000
given 7,530
Remeasurement loss Schedule One 10
Schedule One—Remeasurement Loss Pesos Canadian Dollars
Net monetary liabilities, 1/1/15* (16,000)x .32 (5,120)
Increases in net monetary assets
Net monetary assets, 12/31/15** 31 ,000 10,860
Net monetary assets, 12/31/15 at
current exchange rate 31 ,000x .35 10 ,850
Remeasurement loss 10
* Net monetary liabilities, 1/1/15, can be determined by first determining the
net monetary assets at 12/31/15 and then backing out the changes in
