ACCT 321 Spring Semester-2022 Case Study Daisan Company was created as a wholly owned subsidiary of...

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ACCT 321 Spring Semester-2022 Case Study Daisan Company was created as a wholly owned subsidiary of Avioco Corporation on January 1, Year 1. On that date, Avioco invested $57,000 in Daisan's capital stock. Given the exchange rate on that date of $0.95 per Brazilian Reals (BRL), the initial investment of $57,000 was converted into 60,000 BRL. Other than the capital investment on January 1, there were no transactions involving stockholders' equity in Year 1. Daisan's BRL-denominated financial statements for Year 2 are as follows: Sales Cost of goods sold Gross profit Operating expenses Income before tax Income taxes Net income Income Statement Year 2 (By BRL) 650,000 (320,000) 330,000 97,000 233,000 (69,900) 163,100 Statement of Retained Earnings Retained earnings, 1/1/Y2 Net income Dividends (paid on 12/1/Y2) Retained earnings, 12/31/Y2 Year 2 (By BRL) 255,000 163,100 (50,000) 368,100 Balance Sheet December 31, Year 2 (By BRL) Cash 80,100 Receivables Inventory 100,000 80,000 Plant & Equipment (acquired on Jan.1/Y.1) 400,000 Less: Accumulated depreciation (60,000) Total assets 600,100 Liabilities 172,000 Capital stock 60,000 Retained earnings, 12/31/Y2 368,100 Total liabilities & Stockholders' equity 600,100 Hala Alnuzhah ACCT 321 Spring Semester-2022 2 Case Study The BRL is the primary currency that Daisan uses in its day-to-day operations. The BRL has steadily fallen in value against the dollar since Avioco made the investment in Daison on January 1, Year 1. Relevant exchange rates for the BRL for Years 1 and 2 are as follows: January 1, Year 1 Average for Year 1 December 31, Year 1 Average for Year 2 December 1, Year 2 $0.95 0.90 0.85 0.82 0.81 0.80 December 31, Year 2 Required: A. Translate Daisan Company's Year 2 financial statements into dollars using Current Rate Method. B. Compute the translation adjustment for Year 2. C. Explain why the sign of the translation adjustment in (B), is it positive or negative? ACCT 321 Spring Semester-2022 Case Study Daisan Company was created as a wholly owned subsidiary of Avioco Corporation on January 1, Year 1. On that date, Avioco invested $57,000 in Daisan's capital stock. Given the exchange rate on that date of $0.95 per Brazilian Reals (BRL), the initial investment of $57,000 was converted into 60,000 BRL. Other than the capital investment on January 1, there were no transactions involving stockholders' equity in Year 1. Daisan's BRL-denominated financial statements for Year 2 are as follows: Sales Cost of goods sold Gross profit Operating expenses Income before tax Income taxes Net income Income Statement Year 2 (By BRL) 650,000 (320,000) 330,000 97,000 233,000 (69,900) 163,100 Statement of Retained Earnings Retained earnings, 1/1/Y2 Net income Dividends (paid on 12/1/Y2) Retained earnings, 12/31/Y2 Year 2 (By BRL) 255,000 163,100 (50,000) 368,100 Balance Sheet December 31, Year 2 (By BRL) Cash 80,100 Receivables Inventory 100,000 80,000 Plant & Equipment (acquired on Jan.1/Y.1) 400,000 Less: Accumulated depreciation (60,000) Total assets 600,100 Liabilities 172,000 Capital stock 60,000 Retained earnings, 12/31/Y2 368,100 Total liabilities & Stockholders' equity 600,100 Hala Alnuzhah ACCT 321 Spring Semester-2022 2 Case Study The BRL is the primary currency that Daisan uses in its day-to-day operations. The BRL has steadily fallen in value against the dollar since Avioco made the investment in Daison on January 1, Year 1. Relevant exchange rates for the BRL for Years 1 and 2 are as follows: January 1, Year 1 Average for Year 1 December 31, Year 1 Average for Year 2 December 1, Year 2 $0.95 0.90 0.85 0.82 0.81 0.80 December 31, Year 2 Required: A. Translate Daisan Company's Year 2 financial statements into dollars using Current Rate Method. B. Compute the translation adjustment for Year 2. C. Explain why the sign of the translation adjustment in (B), is it positive or negative?