Question
GMs Spain-based subsidiary that uses the euro as its presentation currency. On 31 December 2016 GM U.S. invested 10,000 when the exchange rate between the
GMs Spain-based subsidiary that uses the euro as its presentation currency. On 31 December 2016 GM U.S. invested 10,000 when the exchange rate between the euro and the US dollar is 1 = US$1 The equity investment of 10,000 is physically converted to begin operations. In addition, Spanish subsidiary borrows 5,000 from local banks on 31 December 2016, purchases inventory that costs 12,000 on 31 December 2016 and retains 3,000 in cash. GMs Spain-based subsidiary balance sheet at 31 December 2016 thus appears as follows:
Exhibit-1 | |||
GMs Spain Balance Sheet, 31 December 2016 (in Euro) | |||
Cash | 3,000 | Notes payable | 5,000 |
Inventory | 12,000 | Common stock | 10,000 |
Total | 15,000 | Total | 15,000 |
During the first quarter of 2017, GMs Spanish subsidiary engages in no transactions. During that period, however, the US dollar weakens against the euro such that the exchange rate on 31 March 2017 is 1 = US$1.121.
Using the financial statement in Exhibit 1 and exchange rates 1 = US$1 and 1 = US$1.121 at December 31, 2016 and March 31, 2017, respectively, DiMaria prepared the as of March 31, 2017 consolidated financial statement and made the following statement:
Statement 4: To prepare the as of March 31, 2017 consolidated financial statement, I have used the temporal method as euro is the functional currency for GMs Spain subsidiary. To keep the U.S. dollar translated balance sheet in balance, a negative translation adjustment of 1,200 is created and included in stockholders equity on the consolidated balance sheet.
Calculate the translation adjustment that needed to include in stockholders equity on the consolidated balance sheet.
A | $1,201 | |
B | $605 | |
C | -$1,201 | |
D | -$650 |
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