Chapter 12 – Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity Statements
P12-27 (continued)
NOT REQUIRED: Entries posted to T-accounts
Investment in
Income from
Western
Ranching
Western
Ranching
Acquisition Price
140,000
80% Net Income
50,088
50,088
80% Net Income
4,824
80% Dividends
6,720
Amort. of Diff.
6,720
Ending Balance
178,544
43,368
Ending Balance
Chapter 12 – Multinational Accounting: Issues in Financial Reporting and Translation of Foreign Entity Statements
P12-32 Translation Choices
Requirement 1:
a.
(7)
LCU 0.83 December 31, 20X4: end of current year
b.
(5)
LCU 0.85 Average for year 20X4 for revenues
c.
(6)
LCU 0.84 November 1, 20X4: declaration date
d.
(7)
LCU 0.83 December 31, 20X4: end of current year
e.
(7)
LCU 0.83 December 31, 20X4: end of current year
f.
(5)
LCU 0.85 Average for year 20X4 for expenses
g.
(1)
LCU 0.74 June 16, 20X1: date foreign company purchased
h.
(7)
LCU 0.83 December 31, 20X4: end of current year
i.
(8)
Balance computed at end of December 31, 20X4, includes
carry forward from prior periods
j.
(7)
LCU 0.83 December 31, 20X4: end of current year
k.
(5)
LCU 0.85 Average for year 20X4 for expenses
Requirement 2:
a.
Direct exchange rate (DER) for January 1, 20X4:
DER = $1 / LCU 0.80
DER = $1.25
b.
U.S. dollar versus LCU in 20X4:
Indirect
Direct
Exchange Rate
Exchange Rate
(LCU / $1)
($ / LCU 1)
Exchange rates on January 1, 20X4
LCU 0.80
$1.25
Exchange rates on December 31, 20X4
LCU 0.83
$1.2048
During 20X4, the direct exchange rate has decreased reflecting that it costs
less U.S. currency for one foreign currency unit at the end of the year as
compared with the beginning of the year. Therefore, the U.S. dollar has
strengthened during the year 20X4. Alternatively, the indirect exchange rate
has increased indicating it costs more in LCU to acquire $1 at December 31,
20X4, than at January 1, 20X4.
