Problem 11-1: Re-measuring a trial balance and analyzing results. In order to demonstrate the use of the re-measurement process, assume that at the beginning of the year a U.S. parent company invested 100,000 foreign currency B (FCB) to form a 100% owned subsidiary. The subsidiary immediately invested the foreign currency in land at a cost of 50,000 FCB and inventory with a cost of 50,000 FCB. At midyear, 50% of the inventory was sold for 40,000 FCB. At year-end, assume that the sale is still uncollected. Although FCB is the subsidiary?s functional currency, the subsidiary maintains its books of record in foreign currency A (FCA). Assume the following exchange rates:

Beginning of Year Mid Year End of Year

1 FCB equals 12.5 FCA 8 FCA 10 FCA

1 FCA equals 0.08 FCB 0.125 FCB 0.10 FCB

1 FCA equals $0.20 $0.40 $0.30

1 FCB equals $2.50 $3.20 $3.00

Prepare the entries to record the above transactions: (a) as they would have been recorded on the books of the subsidiary and (b) as they would have been recorded had they been recorded in terms of FCB. Also, prepare the trial balance that would have resulted under each of the recording models.

2. Prepare a schedule to remeasure the FCA trial balance into an FCB trial balance and then translate into U.S. dollars.

3. Prepare a schedule to directly calculate the translation adjustment to be reported in other comprehensive income.

4. Compare the remeasured FCB trial balance to the FCB trial balance in part (1) and comment regarding whether the objectives of translation have been achieved.

The attached spreadsheet was provided.

Problem 11-1 -1 Entries to record transactionsDebit (Credit): In FCA Account Titles Debit Credit Trial balance: Trial Balance: In FCA Debit Credit Rate DR (CR) FCB/FCA In FCB Receivable....................... Inventory.................. Land....................... Common Stock............ Sales........................ Cost of Sales................... Exchange (Gain) or Loss............. Remeasurement (Gain) or Loss........... Translation Adjustment.................. Total................................. Net Income................ -2 Remeasurement and translation of trial balance: DR (CR) Trial Balance: Receivable....................... In FCA Inventory.................. Land....................... Common Stock............ Sales........................ Cost of Sales................... Exchange Gain............. Remeasurement Loss.............. Translation Adjustment....... Total...................... Net Income (Loss)................ -3 Translation adjustment traceable to the current year: -4 In FCB Debit Credit In FCB Debit Credit Rate DR (CR_ U.S.$/FCB In U.S.$ Year A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 B C D Problem 11-3 Sorenson Company Trial Balance Translation 31-Dec-18 Account Cash Accounts Receivable Inventory Fixed Assets Accumulated Depreciation Accounts Payable Long-Term Debt Common Stock Paid-In Capital in Excess of Par Retained Earnings, January 1, 20X8 Sales Cost of Goods Sold Operating Expenses Cumulative Translation Adjustment Totals Relevant Exchange Rate Balance in FC 2,840,000 3,990,000 5,800,000 15,000,000 (6,800,000) (1,580,000) (5,000,000) (3,000,000) (2,000,000) (7,950,000) (10,000,000) 7,500,000 1,200,000 Translate the balance of Retained Earnings below: 0 Balance in Dollars E F G H I A 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 B C D E F G H I Pueblo Corporation and Sorenson Company Worksheet for Consolidated Financial Statements (in dollars) For Year Ended December 31, 2018 Consolidated Pueblo Cash Accounts Receivable Inventory Investment in Sorenson Fixed Assets Accumulated Depreciation Additional Equipment Accounts Payable Long-Term Debt Common Stock - Parent Common Stock - Subsidiary Paid-In Capital in Excess of Par- Parent Paid-In Capital in Excess of Par - Subsidiary Retained Earnings, 1/1/18- Parent Retained Earnings, 1/1/18 Subsidiary Sales Cost of Goods Sold Operating Expenses Subsidiary Income Total Trial Balance Sorenson 4,050,000 5,270,000 5,540,000 20,969,000 Key Eliminations and Adjustments Dr. Key Income Cr. Statement 21,000,000 (12,560,000) (3,450,000) (10,000,000) (4,000,000) (6,500,000) (12,180,000) (26,000,000) 16,380,000 3,210,000 (1,729,000) 0 0 0 0 Consolidated Balance Sheet A 69 Consolidated Net Income 70 71 72 Eliminations and Adjustments: 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 B C D E F G H I 0 0