Question
NYC Inc. (a US-based company) established a subsidiary in South Africa on January 1, Year 1, by investing 300,000 South African rand (ZAR) when the
NYC Inc. (a US-based company) established a subsidiary in South Africa on January 1, Year 1, by investing 300,000 South African rand (ZAR) when the exchange rate was US$0.09 / ZAR 1. On that date, the foreign subsidiary borrowed ZAR 500,000 from local banks on a 10-year note to finance the acquisition of plant and equipment. The subsidiary's opening balance sheet (in ZAR) was as follows:
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During Year 1, the foreign subsidiary generated sales of ZAR 1,000,000 and net income of ZAR 110,000. Dividends in the amount of ZAR 20,000 were paid to the parent on June 1 and December 1. Inventory was acquired evenly throughout the year, with ending inventory acquired on November 15, Year 1. Relevant exchange rates for Year 1 are as follows (US$ per ZAR): | ||||
January 1, Year 1 | $ 0.090 | |||
June 1, Year 1 | $ 0.095 | |||
Average for Year 1 | $ 0.096 | |||
November 15, Year 1 | $ 0.100 | |||
December 1, Year 1 | $ 0.105 | |||
December 31, Year 1 | $ 0.110 |
The subsidiary's ZAR financial statements for the year ended December 31, Year 1, are presented below.
a. Translate the South African subsidiarys financial statements into US$ assuming that the South African Rand is the functional currency.
b. Translate the South African subsidiarys financial statements into US$ assuming that the US$ is the functional currency.
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