On January 1, 2020, Foreign Sub issued FC120 of long-term debt and FC120 of common stock in the acquisition of land costing FC240. Operating activities occurred evenly over the year.

a. Assume that the currency of Foreign Sub is the functional currency.

1. Compute the change in the cumulative translation adjustment for 2020.

2. Indicate whether the change increases or decreases shareholders equity. (Use dropdown menu.)

b. Assume that the U.S. dollar is the functional currency.

1. Compute the amount of the translation gain or loss for 2020.

2. Indicate whether the amount is a gain or loss. (Use drop-down menu.)

2. (15 points) Foreign Sub is a wholly owned subsidiary of U.S. Domestic Corporation. U.S. Domestic Corporation acquired the subsidiary several years ago. The financial statements for Foreign Sub for 2020 in its own currency appear below: Balance Sheet (In Foreign Currency Units) December 31, 2019 Cash 145 Accounts receivable 359 Inventories 355 Land 565 Total Assets 1,424 Accounts payable 300 Long-term debt 179 Common stock 548 Retained earnings 397 Total Liabilities and Equities 1.424 December 31, 2020 195 321 442 667 1.625 142 253 581 649 1.625 Income Statement (In Foreign Currency Units) For 2020 Sales 4,942 Cost of Goods Sold (3,954) Selling and administrative expenses (421) Income taxes (198) Net income 369 Dividend declared and paid on December 31 (117) Increase (decrease) in Retained Earnings 252 The exchange rates between the U.S. dollar and the foreign currency of the subsidiary are: December 31, 2019 $9.0:1 FC Average 2020 $7.5:1 FC December 31, 2020 $6.0:1 FC On January 1, 2020, Foreign Sub issued FC120 of long-term debt and FC120 of common stock in the acquisition of land costing FC240. Operating activities occurred evenly over the year. a. Assume that the currency of Foreign Sub is the functional currency. 1. Compute the change in the cumulative translation adjustment for 2020. 2. Indicate whether the change increases or decreases shareholders' equity. (Use drop- down menu.) b. Assume that the U.S. dollar is the functional currency. 1. Compute the amount of the translation gain or loss for 2020. 2. Indicate whether the amount is a gain or loss. (Use drop-down menu.) 2. (15 points) Foreign Sub is a wholly owned subsidiary of U.S. Domestic Corporation. U.S. Domestic Corporation acquired the subsidiary several years ago. The financial statements for Foreign Sub for 2020 in its own currency appear below: Balance Sheet (In Foreign Currency Units) December 31, 2019 Cash 145 Accounts receivable 359 Inventories 355 Land 565 Total Assets 1,424 Accounts payable 300 Long-term debt 179 Common stock 548 Retained earnings 397 Total Liabilities and Equities 1.424 December 31, 2020 195 321 442 667 1.625 142 253 581 649 1.625 Income Statement (In Foreign Currency Units) For 2020 Sales 4,942 Cost of Goods Sold (3,954) Selling and administrative expenses (421) Income taxes (198) Net income 369 Dividend declared and paid on December 31 (117) Increase (decrease) in Retained Earnings 252 The exchange rates between the U.S. dollar and the foreign currency of the subsidiary are: December 31, 2019 $9.0:1 FC Average 2020 $7.5:1 FC December 31, 2020 $6.0:1 FC On January 1, 2020, Foreign Sub issued FC120 of long-term debt and FC120 of common stock in the acquisition of land costing FC240. Operating activities occurred evenly over the year. a. Assume that the currency of Foreign Sub is the functional currency. 1. Compute the change in the cumulative translation adjustment for 2020. 2. Indicate whether the change increases or decreases shareholders' equity. (Use drop- down menu.) b. Assume that the U.S. dollar is the functional currency. 1. Compute the amount of the translation gain or loss for 2020. 2. Indicate whether the amount is a gain or loss. (Use drop-down menu.)