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Wick Corporation has a Mexican subsidiary that had the following balance sheet at December 31, 20X1 (stated in millions of pesos): (millions of pesos) Cash
Wick Corporation has a Mexican subsidiary that had the following balance sheet at December 31, 20X1 (stated in millions of pesos):
(millions of pesos) | |||
Cash | 300 | ||
Accounts receivable | 125 | ||
Inventory | 400 | ||
Property and equipment | 1,950 | ||
Total assets | 2,775 | ||
Accounts payable | 280 | ||
Long-term debt | 1,200 | ||
Common equity | 1,295 | ||
Total liabilities and equity | 2,775 | ||
At December 31, 20X1, it took 19.66 pesos to buy one U.S. dollar. At December 31, 20X2, it took only 19.50 pesos to buy one U.S. dollar because the peso had strengthened during the year. None of the amounts on Wicks subsidiarys balance sheet deviated substantially from the December 31, 20X1, amounts during the year.
Required:
- If the subsidiarys financial statements are translated under the current rate method, will there be a gain or loss related to translation adjustments and will it be recognized in net income or in other comprehensive income?
- If the subsidiarys financial statements are remeasured under the temporal method, will there be a gain or loss related to translation adjustments and will it be recognized in net income or in other comprehensive income?
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