Excerise 1 problem 1 only
2. Assume that a U.S. company has a French subsidiary whose functional currency is the euro. Explain why the translation adjustment is not included as a component of net income on the consolidated income statement. 3. how aGerman subsidiary's year-end balance inretained earnings is expressed in dollars assuming that the euro isthe functional currency. 4. Assume that aus. company has a foreign subsidiary whose functional currency isthe U.S. dollar. Explain how exchange rates between the foreign currency and the dollar would have to change in order to result in a current-year remeasurement loss and how the company could use a foreign currency loan receivable or payable to hedge against its net investment in the foreign subsidiary 5. Explain why functional currency should be remeasured, rather than translated, when a foreign entity's functional currency is highly inflationary. EXERCISES Measurement of the translation adjustment and hedging an Exercise 1ao nvestment. Brico Enterprises, a corporation, uired an 80% interest in Bandar Dis- tributors in June 2012 when 1 FC equaled $1.62. acqui corporation whose fu for Bandar is a foreign tional currency is the FC. The condensed preclosing comparative t balance for Bandar the current year ended December 31,2015, is as follows: 31, 2014 December 31, 2015 185,000 FC 165,000 FC 400,000 420,000 Long Lived Assets (ne) 165,000 170,000 Other Assets 425,000 525,000 Cost of Sales 260,000 Other Expenses 135,000) 175,000) Current Liabilities 1225,0000 125,000 Other Liabilities 865,000) (820,000 Dividends Declared. (100,000) (100,000 Common Stock (140,000 Retained Earnings (beginning) Total Dividends are declared on March 1 of each year and are paid on March 31 of that year. translated balance in retained earnings at the beginning of 2014 was $227,300. a l. Determine the balance in the cumulative translation adjustment December 31, 2015 balance as of December 31, 2015 2. Determi how much of the cumulative translation adjustment is traceable to the yearsprior to 201 approach 3. Given your answer to part (2), verify our answer by using an alternative prior to 2015. the amount of the cumulative translation adjustment that is traceable to years against 4. Assume that Brico borrowed 100,000 FC on March 1, 2015, as a hedge the current-year ment in the subsidiary. Determine how much of the parent's interest in 2. Assume that a U.S. company has a French subsidiary whose functional currency is the euro. Explain why the translation adjustment is not included as a component of net income on the consolidated income statement. 3. how aGerman subsidiary's year-end balance inretained earnings is expressed in dollars assuming that the euro isthe functional currency. 4. Assume that aus. company has a foreign subsidiary whose functional currency isthe U.S. dollar. Explain how exchange rates between the foreign currency and the dollar would have to change in order to result in a current-year remeasurement loss and how the company could use a foreign currency loan receivable or payable to hedge against its net investment in the foreign subsidiary 5. Explain why functional currency should be remeasured, rather than translated, when a foreign entity's functional currency is highly inflationary. EXERCISES Measurement of the translation adjustment and hedging an Exercise 1ao nvestment. Brico Enterprises, a corporation, uired an 80% interest in Bandar Dis- tributors in June 2012 when 1 FC equaled $1.62. acqui corporation whose fu for Bandar is a foreign tional currency is the FC. The condensed preclosing comparative t balance for Bandar the current year ended December 31,2015, is as follows: 31, 2014 December 31, 2015 185,000 FC 165,000 FC 400,000 420,000 Long Lived Assets (ne) 165,000 170,000 Other Assets 425,000 525,000 Cost of Sales 260,000 Other Expenses 135,000) 175,000) Current Liabilities 1225,0000 125,000 Other Liabilities 865,000) (820,000 Dividends Declared. (100,000) (100,000 Common Stock (140,000 Retained Earnings (beginning) Total Dividends are declared on March 1 of each year and are paid on March 31 of that year. translated balance in retained earnings at the beginning of 2014 was $227,300. a l. Determine the balance in the cumulative translation adjustment December 31, 2015 balance as of December 31, 2015 2. Determi how much of the cumulative translation adjustment is traceable to the yearsprior to 201 approach 3. Given your answer to part (2), verify our answer by using an alternative prior to 2015. the amount of the cumulative translation adjustment that is traceable to years against 4. Assume that Brico borrowed 100,000 FC on March 1, 2015, as a hedge the current-year ment in the subsidiary. Determine how much of the parent's interest in
