A

translate the December 31, 2015 pro forma foreign

currency financial statements of a subsidiary that follow into the parents reporting

currency, the U.S. dollar, using the current rate method.

l	Pro Forma Foreign Currency Financial Statements The common stock was issued in 2005 when the exchange rate was $2.08 per LCU. Fixed assets were acquired in 2006 when the rate was $2.00 per LCU.
l	As of January 1, 2015, the Retained Earnings balance will be translated as $395,000.
l	The U.S. $ per LCU exchange rates for $1 expected for the current year follow:
		January 1, 2015	$1.67
		April 1, 2015	$1.61
		September 1, 2015	$1.72
		December 31, 2015	$1.54
		Weighted Average Rate for 2015	$1.59
l	Inventory will be acquired evenly throughout the year
l	Dividends will be declared on April 1, 2015, and a piece of equipment is expected to be sold on September 1, 2015.

B

After preparing the budget for 2015 (Part A above), management was informed that political unrest was growing in the country where the subsidiary is located. If the situation is not quickly resolved at the beginning of 2016, the economy of the foreign nation will be impacted negatively and several of the exchange rates used when preparing the original budget (A above) will change by 40%.

C

Prepare the adjusting journal entry that would be made on the books of the Parent if the receivables on the subsidiarys balance sheet are all due from the parent and the situation described in Part B is not quickly resolved. The pro forma Accounts Receivable balance is $174,000.

Part A
Income Statement
For the Year Ending December 31, 2015
	LCU	Ex Rate	Code	U.S. Dollars
Sales	270,000
Cost of goods sold	(155,000)
Gross profit	115,000
Less: Operating expenses	(54,000)
Gain on sale of equipment	10,000
Net income	71,000
Statement of Retained Earnings
For the Year Ending December 31, 2015
	LCU	Ex Rate	Code	U.S. Dollars
Retained earnings, 1/1	216,000
Net income	71,000
Less: Dividends	(26,000)
Retained earnings, 12/31	261,000
Balance Sheet
December 31, 2015
	LCU	Ex Rate	Code	U.S. Dollars
Assets
Cash	44,000
Receivables	116,000
Inventory	58,000
Fixed assets (net)	339,000
Total assets	557,000
Liabilities and Equities
Liabilities	176,000
Common stock	120,000
Retained earnings, 12/31	261,000
Translation adjustment
Total liabilities and equities	557,000

Part B
Income Statement
For the Year Ending December 31, 2015
	LCU	Ex Rate	Code	U.S. Dollars
Sales	270,000
Cost of goods sold	(155,000)
Gross profit	115,000
Less: Operating expenses	(54,000)
Gain on sale of equipment	10,000
Net income	71,000
Statement of Retained Earnings
For the Year Ending December 31, 2015
	LCU	Ex Rate	Code	U.S. Dollars
Retained earnings, 1/1	216,000
Net income	71,000
Less: Dividends	(26,000)
Retained earnings, 12/31	261,000
Balance Sheet
December 31, 2015
	LCU	Ex Rate	Code	U.S. Dollars
Assets
Cash	44,000
Receivables	116,000
Inventory	58,000
Fixed assets (net)	339,000
Total assets	557,000
Liabilities and Equities
Liabilities	176,000
Common stock	120,000
Retained earnings, 12/31	261,000
Translation adjustment
Total liabilities and equities	557,000