Watson Company has a subsidiary in the country of Alonza where the local currency unit is the kamel (KM). On December 31, 2012, the subsidiary has the following balance sheet: Cash KM 16,000 Notes payable (due 2012) KM 19,000 Inventory 10,000 Common stock 20,000 Land 4,000 Retained earnings 10,000 Building 40,000 Accumulated depreciation (21,000) KM 49,000 KM 49,000 The subsidiary acquired the inventory on August 1, 2012, and the land and buildings in 2000. It issued the common stock in 1998. During 2013, the following transactions took place: 20113 Feb 1 Paid 5,000 KM on the note payable. May 1 Sold entire inventory for 15,000 KM on account. June 1 Sold land for 5,000 KM cash. Aug 1 Collected all accounts receivable. Sept 1 Signed long-term note to receive 6,000 KM cash. Oct 1 Bought inventory for 12,000 KM cash. Nov 1 Bought land for 4,000 KM on account. Dec 1 Paid 3,000 KM cash dividend to parent. Dec 31 Recorded depreciation for the entire year of 2,000 KM. The exchange rates for 1 KM are as follows: 1998 1 KM = $ 0.24 2000 1 = 0.21 August 1, 2012 1 = 0.31 December 31, 2012 1 = 0.32 February 1, 2013 1 = 0.33 May 1, 2013 1 = 0.34 June 1, 2013 1 = 0.35 August 1, 2013 1 = 0.37 September 1, 2013 1 = 0.38 October 1, 2013 1 = 0.39 November 1, 2013 1 = 0.40 December 1, 2013 1 = 0.41 December 31, 2013 1 = 0.42 Average for 2013 1 = 0.37 (a) If this is a translation, what is the translation adjustment determined solely for 2013? (b) If this is a remeasurement, what is the remeasurement gain or loss determined solely for 2013?

page 407 (Compute translation adjustment and remeasurement gain/loss) a. Translationonly changes in net assets have an impact on the computation of the translation adjustment. Rate recalculated value Net asset balance 1/1 Increases in net assets (income): Sold inventory at a profit 5/1 Sold land at a gain 6/1 Decreases in net assets: Paid a dividend 12/1 Depreciation recorded Net asset balance 12/31 Net asset balance 12/31 at current exchange rate KM30,000 5,000 1,000 -3,000 -2,000 KM31,000 KM31,000 Translation adjustmentpositive b. Remeasurementonly changes in net monetary assets and liabilities have an impact on the computation of the remeasurement gain. Beginning net monetary liability position Increases in monetary assets: Sold inventory 5/1 Sold land 6/1 Decreases in monetary assets: Bought inventory 10/1 Bought land 11/1 Paid a dividend 12/1 Ending net monetary liability position Ending net monetary liability position at current exchange rate Remeasurement gain KM (3,000) 15,000 5,000 -12,000 -4,000 -3,000 KM(2,000) KM(2,000) Note: The purchase of land on account did not result in a decrease in monetary assets, rather an increase in monetary liabilities. Payment on the note payable and collection of accounts receivable do not affect the net monetary liability position. (page407-408) (Compute translation adjustment and remeasurement gain/loss) a. The translation adjustment is based on changes in the net assets of the subsidiary. Net assets, 1/1 Changes in net assets Rendered services Incurred expense Net assets, 12/31 Net assets, 12/31 at current exchange rate Translation adjustment (positive) 82,000 LCU 30,000 LCU (18,000) LCU 94,000 LCU 94,000 LCU b. The remeasurement gain or loss is based on changes in the net monetary assets of the subsidiary. Net monetary assets, 1/1 Changes in net monetary assets Rendered services Incurred expense Net monetary assets, 12/31 Net monetary assets, 12/31 at current exchange rate Remeasurement gain 22,000 LCU Translated value of land Remeasured value of land 60,000 LCU 60,000 LCU 30,000 LCU (18,000) LCU 34,000 LCU 34,000 LCU