Question
Gymson is an Italian subsidiary of U.S. company Universal Playgrounds, Inc. Gymson began operations on January 1,2018. Its comparative balance sheets for January 1 and
Gymson is an Italian subsidiary of U.S. company Universal Playgrounds, Inc. Gymson began operations on January 1,2018. Its comparative balance sheets for January 1 and December 31, 2018, are presented below in euros:
1/1/18 12/31/18 Cash and receivables 10,000 20,000 Inventories, at cost 40,000 90,000 Noncurrent assets, net 700,000 530,000 Total assets 750,000 640,000 Liabilities 550,000 420,000 Capital stock 200,000 200,000 Retained earnings 0 20,000 Total liabilities and equity 750000 640,000
During 2018, the following events occurred:
1. Sales revenue was 2,000,000, earned evenly during the year.
2. Inventory purchases were 1,200,000, made evenly over the year.
3. Out-of-pocket operating expenses were 650,000, incurred evenly throughout the year.
4. Depreciation expense on equipment was 170,000.
5. Dividends of 10,000 were declared and paid when the exchange rate was $1.52/
Relevant exchange rates are as follows:
January 1, 2018 $1.40
2018 average $1.50
December 31, 2018 $1.55
REQUIRED: Use the method we went over in class to directly calculate the translation gain/loss or the remeasurement gain/loss under each of the following assumptions (be sure to clearly identify which it is and whether it is a gain or loss):
A. Assume Gymsons functional currency is the euro.
B. Assume Gymsons functional currency is the U.S. dollar.
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