Question
On September 10, 2023, the Globe Trading Company invested $3,000,000 to establish a small sales subsidiary in Lima, Peru. The subsidiary converted $3,000,000 into 10,000,000
On September 10, 2023, the Globe Trading Company invested $3,000,000 to establish a small sales subsidiary in Lima, Peru. The subsidiary converted $3,000,000 into 10,000,000 soles (S/) and opened a bank account in Lima. At December 31, 2023, the subsidiary reports the following trial balance:
Trial BalanceDr (Cr)CashS/ 4,400,000Equipment, purchased on September 102,700,000Operating expenses2,900,000Capital(10,000,000)TotalS/ 0
The subsidiary reports no depreciation on the equipment in 2023. The exchange rate was $0.33/S/ on December 31, 2023, and averaged $0.31/S/ during the period from September 10 to December 31, 2023. Other than the equipment purchase, all other payments occurred evenly over the period.
Required
a. Assuming the functional currency of the sales subsidiary is the U.S. dollar, prepare a schedule to compute the remeasurement gain or loss in 2023.
Instructions:
- Use negative signs with answers to indicate a negative exposed position balance.
- Use negative signs with answers to indicate an amount that reduces the exposed position balance.
- Using the drop-down menu, select the appropriate answer to indicate a remeasurement gain or remeasurement loss.
- Do not use a negative sign with your remeasurement gain or remeasurement loss answer.
- Enter answers using all zeros (do not abbreviate to millions or thousands).
S/$/S/$Exposed position, 9/10/23
Answer
Answer
Answer
Purchase of equipment
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Answer
Answer
Operating expenses
Answer
Answer
Answer
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Exposed position, 12/31/23
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Answer
Answer
AnswerRemeasurement gainRemeasurement loss
Answer
b. Assuming the functional currency of the subsidiary is the sol, prepare a schedule to compute the translation gain or loss in 2023.
Instructions:
- Use negative signs with answers to indicate a negative exposed position balance.
- Use negative signs with answers to indicate an amount that reduces the exposed position balance.
- Using the drop-down menu, select the appropriate answer to indicate a translation gain or translation loss.
- Do not use a negative sign with your translation gain or translation loss answer.
- Enter answers using all zeros (do not abbreviate to millions or thousands).
Answer
Answer
Answer
Operating expenses
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Answer
Answer
Answer
Exposed position, 12/31/23
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Answer
Answer
AnswerTranslation gainTranslation loss
Answer
c. For each functional currency alternative, give the entry or entries made by Globe at year-end, assuming Globe uses the complete equity method to report its investment in the sales subsidiary. Enter numerical answers using all zeros (do not abbreviate answers to millions or thousands).
Remeasurement entry:
Description DebitCreditAnswerEquity in net loss of subsidiaryEquity in OCI of subsidiaryInvestment in subsidiaryAnswer
Answer
AnswerEquity in net loss of subsidiaryEquity in OCI of subsidiaryInvestment in subsidiary
Answer
Answer
Translation entry:
Description DebitCreditAnswerEquity in net loss of subsidiaryEquity in OCI of subsidiaryInvestment in subsidiaryAnswer
Answer
Investment in subsidiary
Answer
Answer
AnswerEquity in net loss of subsidiaryEquity in OCI of subsidiaryInvestment in subsidiary
Answer
Answer
d. Globes trial balance at December 31, 2023, before year-end adjustments for its investment in the Lima subsidiary, is below. Prepare a working paper to consolidate the subsidiary, for each functional currency alternative.
Dr (Cr)Cash$500,000Property, plant and equipment, net22,000,000Investment in subsidiary3,000,000Liabilities(16,000,000)Capital(5,000,000)Retained earnings, January 1(2,000,000)Revenues(15,000,000)Expenses12,500,000Total$0
Instructions for Consolidation Working Papers:
- Use negative signs with Cr (credit balance) answers in the Dr(Cr) columns (not in the Credit column).
- Enter answers using all zeros (do not abbreviate answers to millions or thousands).
Remeasurement consolidation:
Globe Dr (Cr)Subsidiary Dr (Cr) DebitCredit Consolidated Balance Dr (Cr)Cash $ 500,000Answer
Answer
PP&E 22,000,000
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Answer
Investment in sub
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(C)
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Answer
(E)
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Liabilities (16,000,000)
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Capital (5,000,000)
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(E)
Answer
Answer
RE, beg (2,000,000)
Answer
Revenues (15,000,000)
Answer
Equity in NL
Answer
Answer
(C)
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Expenses 12,500,000
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Remeasurement gain or loss
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Answer
Answer
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Translation consolidation:
Globe Dr (Cr)Subsidiary Dr (Cr) DebitCredit Consolidated Balance Dr (Cr)Cash $ 500,000Answer
Answer
PP&E 22,000,000
Answer
Answer
Investment in sub
Answer
(C)
Answer
Answer
(E)
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Liabilities (16,000,000)
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Capital (5,000,000)
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(E)
Answer
Answer
RE, beg (2,000,000)
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Revenues (15,000,000)
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Equity in NL
Answer
Answer
(C)
Answer
Equity in OCI
Answer
(C)
Answer
Answer
Expenses 12,500,000
Answer
Answer
OCI/L
Answer
Answer
Answer
Answer
Answer
Answer
Answer
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