Part A. Suppose United Mining Corporation completed the following transactions:

Dec. 1 Sold iron ore on account to Pirelli Tire Company for \(\$ 19,000\). The exchange rate of the Italian lira is \(\$ 0.0007\), and Pirelli agrees to pay in dollars.

10 Purchased supplies on account from a Canadian company at a price of Canadian \(\$ 50,000\). The exchange rate of the Canadian dollar is \(\$ 0.80\), and payment will be in Canadian dollars.

17 Sold inventory on account to an English firm for 100,000 British pounds. Payment will be in pounds, and the exchange rate of the pound is \(\$ 1.50\).

22 Collected from Pirelli.

31 Adjusted the accounts for changes in foreign-currency exchange rates. Current rates: Canadian dollar, \$0.82; English pound, \(\$ 1.58\).

Jan. 18 Paid the Canadian company. The exchange rate of the Canadian dollar is \(\$ 0.77\).

24 Collected from the English firm. The exchange rate of the British pound is \(\$ 1.57\).

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1. Record these transactions in United's general journal, and show how to report the transaction gain or loss on the income statement.

2. How will what you learned in this problem help you structure international transactions?

Part B. Suppose that Alaskan, Inc., owns a subsidiary based in Denmark.

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1. Translate the foreign-currency balance sheet of the Danish subsidiary of Alaskan, Inc., into dollars. When Alaskan acquired this subsidiary, the Danish krone was worth \(\$ 0.17\). The current exchange rate is \(\$ 0.16\). During the period when the subsidiary earned its income, the average exchange rate was \(\$ 0.18\) per krone.

Before you perform the translation calculations, indicate whether Alaskan has experienced a positive or a negative translation adjustment. State whether the adjustment is a gain or a loss. Explain your answer.

2. How will what you learned in this problem help you understand published financial statements?

Transcribed Image Text:

Krone Assets....... 3,000,000 Liabilities....... 1,000,000 Stockholders' equity: Common stock.......... 300,000 Retained earnings.. 1,700,000 3,000,000