Question
Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 by acquiring all of the common stock for 50,000 Stickles, the
Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 by acquiring all of the common stock for 50,000 Stickles, the local currency. This subsidiary immediately borrowed 120,000 on a five-year note with ten percent interest payable annually beginning on January 1, 2014. A building was then purchased for 170,000 on January 1, 2013. This property had a ten-year anticipated life and no salvage value and was to be depreciated using the straight-line method. The building was immediately rented for three years to a group of local doctors for 6,000 per month. By year-end, payments totaling 60,000 had been received. On October 1, 5,000 were paid for a repair made on that date and it was the only transaction of this kind for the year. A cash dividend of 6,000 was transferred back to Ginvold on December 31, 2013. The functional currency for the subsidiary was the Stickle (). Currency exchange rates were as follows:
January 1, 2013: 1 = $2.40
October 1, 2013: 1 = $2.22
Average, 2013: 1 = $2.28
December 31, 2013: 1 = $2.16
Compute the translation adjustment for the year 2013.
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