Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-21
Education.
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
Equipment 3,000 KQ x 1.71 5,130
Accumulated Depreciation 600 KQ x 1.71 $ 1,026
Net monetary assets, 1/1 -0- -0-
Increase in net monetary assets:
Common stock issued 10,000 KQ x 1.71 $17,100
Sales 25,000 KQ x 1.64 41,000
Decrease in net monetary assets:
Acquired equipment (3,000) KQ x 1.71 (5,130)
33. (30 minutes) (Translate financial statements of a foreign subsidiary)
LIVINGSTON COMPANY
Income Statement
For the Year Ending December 31, 2017
Goghs
Ex Rate
Code
U.S. Dollars
Sales
270,000
1.59
A
429,300
Cost of goods sold
(155,000)
1.59
A
(246,450)
Gross profit
115,000
182,850
Less: Operating expenses
(54,000)
1.59
A
(85,860)
Gain on sale of equipment
10,000
1.72
H
17,200
Net income
71,000
114,190
Statement of Retained Earnings
For the Year Ending December 31, 2017
Goghs
Ex Rate
Code
U.S. Dollars
Retained earnings, 1/1
216,000
given
396,520
Net income
71,000
above
114,190
Less: Dividends
(26,000)
1.61
H
(41,860)
Retained earnings, 12/31
261,000
468,850
Balance Sheet
December 31, 2017
Goghs
Ex Rate
Code
U.S. Dollars
Assets
Cash
44,000
1.54
C
67,760
Receivables
116,000
1.54
C
178,640
Inventory
58,000
1.54
C
89,320
Fixed assets (net)
339,000
1.54
C
522,060
Total assets
557,000
857,780
Liabilities and Equities
Liabilities
176,000
1.54
C
271,040
Common stock
120,000
2.08
H
249,600
Retained earnings, 12/31
261,000
above
468,850
Translation adjustment
(131,710)
Total liabilities and equities
557,000
857,780
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Education.
33. (continued)
Goghs
Ex Rate
Code
U.S. Dollars
Net assets, 1/1
336,000
1.67
BOY
561,120
Net income
71,000
above
114,190
Dividends
(26,000)
above
(41,860)
Net assets, 12/31
381,000
633,450
Net assets at current exchange rate
381,000
1.54
C
586,740
46,710
given
85,000
Cumulative translation adjustment, 12/31 (negative)
131,710
34. (35 minutes) (Compute remeasurement gain/loss and translation adjustment)
a. Remeasurement Gain or Loss
Exchange
KR Rate US$
Net monetary assets, 1/1/17* 35,000 x $3.00 = $105,000
Increases in net monetary assets:
Issued Common Stock (4/1/17) 13,000 x $3.10 = 40,300
Sold Building** (7/1/17) 10,000 x $3.30 = 33,000
Sales (2017) 162,000 x $3.20 = 518,400
Decreases in net monetary assets:
Purchased Equipment (4/1/17) (64,000) x $3.10 = (198,400)
b. Translation Adjustment
Exchange
KR Rate US$
Net assets, 1/1/17* 124,000 x $3.00 = $372,000
Increases in net assets:
Issued Common Stock (4/1/17) 13,000 x $3.10 = 40,300
Gain on Sale of Building** (7/1/17) 8,500 x $3.30 = 28,050
Sales (2017) 162,000 x $3.20 = 518,400
Decreases in net assets:
10-25
Education.
35. (90 minutes) (Remeasure non-functional currency accounts into foreign
functional currency and then translate foreign functional currency financial
statements into U.S. dollars)
a. Remeasurement of Mexican Operations
Canadian Dollars
Pesos Debit Credit
Accounts payable 49,000 x .35 C 17,150
Accumulated depreciation 19,000 x .25 H 4,750
Building and equipment 40,000 x .25 H 10,000
Cash 59,000 x .35 C 20,650
Depreciation expense 2,000 x .25 H 500
Inventory (beginning
Schedule One—Remeasurement Loss Pesos Canadian Dollars
Net monetary liabilities, 1/1/17* (16,000) x .32 (5,120)
Increases in net monetary assets
Sales 124,000 x .34 42,160
Decreases in net monetary assets
Purchases (68,000) x .34 (23,120)
Salary Expense ( 9,000) x .34 ( 3,060)
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-26
Education.
35. (continued)
b. and c.
The following C$ financial statements are produced by combining the figures
from the main operation with the remeasured figures from the branch
operation. The Branch Operation and Main Office accounts offset each
other. Cost of goods sold for the Mexican branch is determined by
combining beginning inventory, purchases, and ending inventory as
remeasured in C$.
Income Statement c. Translation into U.S. dollars—
For the Year Ended December 31, 2017 Current Rate Method
Sales C$ 354,160 x .67 A = $ 237,287.20
Cost of goods sold (223,500) x .67 A = (149,745.00)
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Education.
35. (continued)
b. and c.
Balance Sheet
December 31, 2017
Cash C$ 46,650 x .65 C = $ 30,322.50
Receivables 75,350 x .65 C = 48,977.50
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-28
36. (90 minutes) (Translate foreign currency financial statements and prepare
consolidation worksheet)
Step One
Simbel’s financial statements are first translated into U.S. dollars after
reclassification of the 10,000 pound expenditure for rent from rent expense
to prepaid rent. Credit balances are in parentheses.
Translation Worksheet
Exchange
Account Pounds Rate Dollars
Sales (800,000) 0.274 (219,200)
Cost of goods sold 420,000 0.274 115,080
Salary expense 74,000 0.274 20,276
Rent expense (adjusted) 36,000 0.274 9,864
Other expenses 59,000 0.274 16,166
Accounts payable (54,000) 0.270 (14,580)
Notes payable (140,000) 0.270 (37,800)
Common stock (240,000) 0.300 (72,000)
Add’l paid-in capital (150,000) 0.300 (45,000)
Retained earnings, 12/31/17 (324,000) Above (90,498)
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Education.
36. (continued)
Schedule 1—Translation of 1/1/17 Retained Earnings
Pounds Dollars
Retained earnings, 1/1/16 -0- -0-
Retained earnings, 1/1/17 (133,000) (38,244)
Schedule 2—Calculation of Cumulative Translation Adjustment at 12/31/17
Pounds Dollars
Net assets, 1/1/16 (390,000) 0.300 (117,000)
Net income, 2016 (163,000) 0.288 (46,944)
Dividends, 6/1/16 30,000 0.290 8,700
Net assets, 12/3/16 (523,000) (155,244)
36. (continued)
Step Two
Cayce and Simbel’s U.S. dollar accounts are then consolidated. Necessary
adjustments and eliminations are made.
Consolidation Worksheet
Adjustments and Consolidated
Cayce Simbel Eliminations Balances
Account Dollars Dollars Debit Credit Dollars
Sales (200,000) (219,200) (419,200)
Cost of goods sold 93,800 115,080 208,880
Salary expense 19,000 20,276 39,276
Ret earn, 1/1/17 (318,000) (38,244) (S) 38,244 (*C) 38,244 (356,244)
Net income (72,950) (66,004) (125,204)
Dividends 24,000 13,750 (I) 13,750 24,000
Ret earn, 12/31/17 (366,950) (90,498) (457,448)
Cash and receivables 110,750 39,420 150,170
Inventory 98,000 80,190 178,190
Prepaid rent 30,000 2,700 32,700
Investment 126,000 -0- (*C) 38,244 (S)164,244 -0-
10-31
36. (continued)
Explanation of Adjustment and Elimination Entries
Entry *C
Investment in Simbel …………………………………………… 38,244
Retained earnings, 1/1/17 …………………………..……. 38,244
To accrue 2017 increase in subsidiary book value (see Schedule 1). Entry is
needed because parent is using the cost method.
Entry S
Common stock (Simbel) …………………………………… 72,000
Add’l paid-in-capital (Simbel) …………………………..…… 45,000
(£E30,000 x $.30).
Entry I
Dividend income …………………………………………………. 13,750
Dividends ……………………………………………………….. 13,750
To eliminate intra-entity dividend payments recorded by parent as income.
Entry E
Cumulative translation adjustment……………………….. 900
Property, plant & equipment (revaluation) ……….. 900
To revalue (write-down) the excess of acquisition consideration over book
10-32
Education.
37. (90 minutes) Translate [remeasure] foreign currency financial statements
using U.S. GAAP and explain sign of translation adjustment [remeasurement
gain/loss])
Part I (a). Czech koruna is the functional currency—current rate method
Exchange
KčS Rate US$
Sales 25,000,000 0.035 875,000
Cost of goods sold (12,000,000) 0.035 (420,000)
Depreciation expense—equipment (2,500,000) 0.035 (87,500)
Depreciation expense—buildings (1,800,000) 0.035 (63,000)
Research and development expense (1,200,000) 0.035 (42,000)
Other expenses (1,000,000) 0.035 (35,000)
Net income 6,500,000 227,500
Retained earnings, 1/1/17 500,000 given 22,500
Dividends, 12/15/17 (1,500,000) 0.031 (46,500)
Retained earnings, 12/31/17 5,500,000 203,500
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-35
Education.
37. (continued)
Schedule B—Equipment
KčS ER US$
Old Equipment—at 1/1/16 20,000,000 0.050 1,000,000
New Equipment—acquired 1/3/17 5,000,000 0.036 180,000
Total 25,000,000 1,180,000
Accum. Depr.—Old Equipment 8,000,000 0.050 400,000
Accum. Depr.—New Equipment 500,000 0.036 18,000
Total 8,500,000 418,000
Calculation of Remeasurement Gain
KčS ER US$
Net mon. liabilities, 1/1/17 (37,000,000) 0.040 (1,480,000)
Increase in mon. assets:
Sales 25,000,000 0.035 875,000
Decrease in mon. assets:
Purchase of inventory (14,500,000) 0.035 (507,500)
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
37. (continued)
Part I (c). U.S. dollar is the functional currency—temporal method (no long-
term debt)
Exchange
KčS Rate US$
Sales 25,000,000 0.035 875,000
Cost of goods sold (12,000,000) Sched. A (493,500)
Depreciation expense—equipment (2,500,000) Sched. B (118,000)
Depreciation expense—buildings (1,800,000) Sched. C (85,200)
Research and development expense (1,200,000) 0.035 (42,000)
Cash 2,000,000 0.030 60,000
Accounts receivable 3,300,000 0.030 99,000
Inventory 8,500,000 0.032 272,000
Equipment 25,000,000 Sched. B 1,180,000
Accum. deprec.—equipment (8,500,000) Sched. B (418,000)
Buildings 72,000,000 Sched. C 3,408,000
Schedule C—Buildings – same as in Part I (b)
10-37
Education.
37. (continued)
Calculation of Remeasurement Loss
KčS ER US$
Net monetary assets, 1/1/17 13,000,000 0.040 520,000
Increase in monetary assets:
Sales 25,000,000 0.035 875,000
Decrease in monetary assets:
Purchase of inventory (14,500,000) 0.035 (507,500)
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-38
Education.
37. (continued)
Part II. Explanation of the negative translation adjustment in Part I (a),
remeasurement gain in Part I (b), and remeasurement loss in Part I (c).
The negative translation adjustment in Part I (a) arises because of two
factors: (1) there is a net asset balance sheet exposure and (2) the Czech
koruna has depreciated against the U.S. dollar during 2017 (from $.040 at
1/1/17 to $.030 at 12/31/17). A net asset balance sheet exposure exists
because all assets are translated at the current exchange rate and exceed
total liabilities which are also translated at the current exchange rate.
The remeasurement gain in Part I (b) arises because of two factors: (1) there
is a net monetary liability balance sheet exposure and (2) the Czech koruna
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-39
Education.
38. (90 minutes) Remeasure the foreign currency transactions of a foreign
subsidiary into the subsidiary’s functional currency and then translate the
subsidiary’s trial balance into the parent’s reporting currency
a.
Remeasurement of Brazilian Real (BRL) Trial Balance into Mexican Pesos (MXN)
BRL Exchange MXN
Debit Credit Rate Debit Credit
Cash 5,500 6.30 C 34,650
Accounts Receivable 28,000 6.30 C 176,400
Notes Payable 5,000 6.30 C 31,500
Calculation of Remeasurement Gain
Exchange
BRL Rate MXN
Net monetary asset balance, 1/1/17 -0-
Increase in net monetary items:
Income (sales less rent and interest) 28,500 6.20 A 176,700
Chapter 10 – Translation of Foreign Currency Financial Statements – Hoyle, Schaefer, Doupnik, 13e
10-40
38. (continued)
b.
Translation of Mexican Peso (MXN) Balances into U.S. Dollars (USD)
Unadjusted Adjustments Adjusted
MXN MXN MXN MXN MXN MXN USD USD
Debit Credit Debit Credit Debit Credit Rate Debit Credit
Cash 1,000,000 34,650 1,034,650 0.072 74,494.80
Accounts Receivable 3,000,000 176,400 3,176,400 0.072 228,700.80
Inventory 5,000,000 5,000,000 0.072 360,000.00
Land 2,000,000 2,000,000 0.072 144,000.00
Machinery and Equipment 15,000,000 15,000,000 0.072 1,080,000.00
Accumulated Depreciation 6,000,000 6,000,000 0.072 432,000.00