ASAP!

PROBLEM 1 Foreign Currency Translation/Remeasurement

A U.S. corporation began operating a subsidiary in a foreign country on January 1, 2021 by acquiring all of the common stock for 100,000 stickles, the local currency unit. (The 1/1/21 balance sheet therefore consists of two accounts: cash and common stock.)

Financial statements for 2021 were as follows:

Income Statement Statement of Retained Earnings

Sales revenue 500,000 st RE, 1/1/21 0 st

COGS (200,000) Net income 170,000

Gross profit 300,000 Less: dividends (20,000)

Depreciation (30,000) RE, 12/31/11 150,000

Other expenses (100,000)

Net income 170,000

Balance Sheet as of 12/31/21

Assets Liabilities & Equity

Cash 280,000 st A/P 50,000 st

A/R 50,000 Long-term debt 200,000

Inventory 50,000 Common stock 100,000

Equipment 150,000 Retained earnings 150,000

Less: Acc. Dep. (30,000) 120,000

Total assets 500,000 Total liab & equity 500,000

Other information:

The subsidiary purchased equipment for 150,000 stickles on 4/1/21 and is using straight-line depreciation with a 5-year life. Dividends of 20,000 were paid on 12/1/21.

Exchange rates are as follows:

January 1, 2021 1 stickle = $2.00

April 1, 2021 1 stickle = $2.10

December 1, 2021 1 stickle = $2.15

December 31, 2021 1 stickle = $2.20

Average for 2021 1 stickle = $2.10

Required:

1. Translate the subsidiarys income statement and balance sheet into U.S. dollars using the current rate method.
2. Provide the calculation for the translation adjustment for 2021.
3. Remeasure the subsidiarys income statement and balance sheet into U.S. dollars using the temporal method.
4. Provide the calculation for the remeasurement gain/loss for 2021.