Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Under TEMPORAL method Daisan Company was created as a wholly owned subsidiary of Avioco Corporation on January 1, Year 1. On that date, Avioco invested
Under TEMPORAL method
Daisan Company was created as a wholly owned subsidiary of Avioco Corporation on January 1, Year 1. On that date, Avioco invested $57,000 in Daisan's capital stock. Given the exchange rate on that date of $0.95 per Brazilian Reals (BRL), the initial investment of $57,000 was converted into 60,000 BRL. Other than the capital investment on January 1, there were no transactions involving stockholders' equity in Year 1. Daisan's BRL-denominated financial statements for Year 2 are as follows: January 1, Year 1 Average for Year 1 December 31, Year 1 Average for Year 2 December 1, Year 2 December 31, Year 2 $0.95 0.90 0.85 0.82 0.81 0.80 Income Statement Year 2 (By BRL) 650,000 (320,000) 330,000 97,000 233,000 (69,900) 163, 100 Required: A. Translate Daisan Company's Year 2 financial statements into dollars using Temporal Method. B. Compute the translation adjustment for Year 2. C. Explain why the sign of the translation adjustment in (B) is positive or negative. Sales Cost of goods sold Gross profit Operating expenses Income before tax Income taxes Net income Statement of Retained Earnings Year 2 (By BRL) Retained earnings, 1/1/Y2 255,000 Net income 163, 100 Dividends (paid on 12/1/Y2) (50,000) Retained earnings, 12/31/Y2 368.100 Balance Sheet December 31, Year 2 (By BRL) Cash 80,100 Receivables 100,000 Inventory 80,000 Plant & Equipment (net) 400,000 Less: Accumulated depreciation (60,000) Total assets 600.100 Liabilities 172,000 Capital stock 60,000 Retained earnings, 12/31/Y2 368, 100 Total liabilities & Stockholders' equity 600, 100 The BRL is the primary currency that Daisan uses in its day-to-day operations. The BRL has steadily fallen in value against the dollar since Avioco made the investment in Daison on January 1, Year 1. Relevant exchange rates for the BRL for Years 1 and 2 are as followsStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started