Problem 8

Ramsey, Inc. owns a company that operates in France. Account balances in francs for the subsidiary are shown below:

2011

January 1 December 31

Cash and Receivables 24,000 26,000

Supplies 1,000 500

Property, Plant, and Equipment 52,500 49,000

Accounts Payable (11,500) (5,500)

Long-term Notes Payable (19,000) (11,000)

Common Stock (30,000) (30,000)

Retained Earnings (17,000) (17,000)

Dividends-Declared & Paid on Dec 31 ---- 3,000

Revenues ---- (30,000)

Operating Expenses ---- 15,000

Totals -0- -0

Exchange rates for 2011 were as follows:

January 1 $0.22

Average for the year 0.19

December 31 0.18

Revenues were earned and operating expenses, except for depreciation and supplies used, were incurred evenly throughout the year. No purchases of supplies or plant assets were made during the year.

Required:

A. Prepare a schedule to compute the translation adjustment for the year, assuming the subsidiary's functional currency is the franc.

B. Prepare a schedule to compute the translation gain or loss, assuming the subsidiary's functional currency is the U.S. dollar.

Solution