would you please help me in this?

I need to solve requirement a & b in the attached document.

Thanks,

P.S.

I uploaded a sample answer as well ( case 6 ) it is a sample one ONLY !

Good tips will be paid ,

Case 6-1 Regents Corporation The nature of Regents's operation is such that choice of an appropriate functional currency is ultimately a judgement call. Students can argue for either currency and should be evaluated on the strength of their analysis. A major lesson of this case is that the functional currency choice is important since the currency designation dictates which translation method, (current or temporal) is ultimately used. The financial statement effects can be very different. Thus it is important for a reader of financial statements to understand how the differing measurement options affect the balance sheet and income statement and be prepared to adjust from one framework to the other, even if only crudely. TEMPORAL METHOD (U.S. DOLLAR IS THE FUNCTIONAL CURRENCY) Balance Sheet Accounts, 12/31/X7 Foreign Currency Cash 1,060 Accounts receivable 2,890 Inventory 3,040 Fixed assets 4,400 Accumulated depreciation (420) Patent ----Total 10,970 Exchange Rate 1.80 1.90 1.78 1.70 1.70 Dollar Equivalent $ 1,908 5,491 5,411 7,480 (714) ----$19,576 Accounts payable Due to parent Long-term debt Deferred taxes Common stock Retained earnings 1,610 1,800 4,500 80 1,500 1,480 10,970 1.80 1.80 1.80 1.80 1.70 residual $ 2,898 3,240 8,100 144 2,550 2,644 $19,576 Income Statement, 12/31/X8 Sales Cost of salesa General and administrative Depreciation Foreign Currency 16,700 (11,300) (1,600) (280) (20) (480) 125 Exchange Rate 1.86 Dollar Equivalent $ 31,062 (20,706) (2,976) (476) (36) (893) 233 Interest Transaction gain 1.86 1.70 1.82 1.86 1.86 Aggregate translation adjustmentb (368) Taxes: Current (670) 1.86 (1,246) Deferred (40) 1.86 (74) Net income 2,435 $ 4,520 Retained earnings, 12/31X7 1,480 2,644 Dividends (300) 1.86 (558) Retained earnings, 12/31X8 3,615 $ 6,606 _____________________________________________________________________________ a Beginning inventory 3,040 1.78 $ 5,411 Purchases 11,690 1.86 21,743 Ending inventory 3,430 1.88 6,448 Cost of Sales 11,300 $20,706 b Aggregate translation adjustment: 1. Monetary assets, 12/31/X7 Monetary liabilities, 12/31/X7 3,950 7,990 ( 4,040) x (1.90 - 1.80) = ($404) 2. Change in negative exposure: 12/31/X7 12/31/X8 Composition of decrease: Sources of monetary items: Net income Depreciation Uses of monetary items: Inventory increase Addition to fixed assets Purchase of patent Dividends ( 4,040) (2,565 ) 1,475 2,435 300 2,735 (390) (500) (70) (300 ) (1,260 ) 1,475 3. Sources of monetary items x difference in year-end rate and rate used to translate income statement = 2,345 x (1.90 - 1.86) = $94 300 x (1.90 - 1.86) = 12 $109 4. Uses of monetary items x difference in year-end rate and rate used to translate those items = (390) x (1.90 - 1.86) = $(15) (300) x (1.90 - 1.86) = (12) (500) x (1.90 - 1.82) = (40) (70) x (1.90 - 1.82) = (6 ) (73) Aggregate translation adjustment = ($404) 109 (73 ) ($368) Balance Sheet, 12/31/X8 Foreign Currency Cash 1,150 Accounts receivable 3,100 Inventory 3,430 Fixed assetsa 4,900 Accumulated depreciationb (720) Exchange Rate 1.90 1.90 1.88 Dollar Equivalent $2,185 5,890 6,448 8,390 (1,226) Patent Total 70 11,930 1.82 127 $21,814 Accounts payable 1,385 1.90 $ 2,632 Due to parent 1,310 1.90 2,489 Long-term debt 4,000 1.90 7,600 Deferred taxes 120 1.90 228 Common stock 1,500 1.70 2,550 Retained earnings 3,615 6,309 Total 11,930 $21,814 ___________________________________________________________________________ a Original assets 4,400 1.70 $ 7,480 New assets 500 1.82 910 $ 8,390 b Original assets 700 1.70 $ 1,190 New assets 20 1.82 36 $ 1,226 CURRENT RATE METHOD (LOCAL CURRENCY IS THE FUNCTIONAL CURRENCY) Balance Sheet Accounts, 12/31/X7 Foreign Currency Exchange Rate Cash 1,060 1.80 Accounts receivable 2,890 1.80 Inventory 3,040 1.80 Fixed assets 4,400 1.80 Accumulated depreciation (420) 1.80 Patent --Total 10,970 Dollar Equivalent $ 1,908 5,202 5,472 7,920 (756) --$19,746 Accounts payable 1,610 Due to parent 1,800 Long-term debt 4,500 Deferred taxes 80 Common stock 1,500 Retained earnings 1,480 Cumulative translation adjustment --Total 10,970 1.80 1.80 1.80 1.80 1.70 $ 2,898 3,240 8,100 144 2,550 2,355 459(given) $19,746 Income Statement, 12/31/X8 Sales Cost of sales General and administrative Depreciation Exchange Rate 1.86 1.86 1.86 1.86 Dollar Equivalent $31,062 (21,018) (2,976) (558) Foreign Currency 16,700 (11,300) (1,600) (300) Interest Transaction gain Taxes: Current Deferred Net income Retained earnings, 12/31X7 Dividends Retained earnings, 12/31X8 (480) 125 1.86 1.86 (893) 232 (670) (40) 2,435 1,480 (300) 3,615 1.86 1.86 (1,246) (74) $ 4,529 2,355 (558) $ 6,326 Balance Sheet, 12/31/X8 Foreign Currency Cash 1,150 Accounts receivable 3,100 Inventory 3,430 Fixed assets 4,900 Accumulated depreciation (720) Patent 70 Total 11,930 1.86 Exchange Rate 1.90 1.90 1.90 1.90 1.90 1.90 Dollar Equivalent $ 2,185 5,890 6,517 9,310 (1,368) 133 $22,667 Accounts payable 1,385 1.90 $ 2,632 Due to parent 1,310 1.90 2,489 Long-term debt 4,000 1.90 7,600 Deferred taxes 120 1.90 228 Common stock 1,500 1.70 2,550 Retained earnings 3,615 6,326 Cumulative translation adj. ----842a Total 11,930 $22,667 ___________________________________________________________________________ a Cumulative translation adjustment: 1. Net exposed assets, 12/31/X7, x change in current rate = 2.980 x (1.90 - 1.80) = $298 2. Change in net assets x difference between year-end and average rate = 2.135 x (1.90 - 1.86) = 85 3. Cumulative translation adjustment 12/31/X7 459 4. Cumulative translation adjustment, 12/31/X8 $842 INTERNATIONAL ACCOUNTING This is about evaluating the results after been chosen relevant translation method. The determination depends on certain circumstances and relationship between the parent and subsidiary. The following case requires the impact of \"temporal method\" and \"current rate method\" in translating a foreign subsidiary's financial statements. The company: Universal Corporation Universal Corporation is an automotive parts manufacturer located in Birmingham, UK. Recently it has been acquired by a U.S. automaker. It imports significant quantity of components from the U.S. parent. It is fully financed by its U.S parent in U.S. dollars. However, its products are invoiced in Pounds, and sold mainly in the U.K. Selling prices are determined locally by local competitions. Material, labor and other operating expenses are mostly local. The U.S. headquarter of Universal Corporation is in a dilemma as to what should be the functional currency of the subsidiary. Should it be the U.S. Dollar or British pound? They are asking for your advice in choosing currency translation methods and its relative financial effects on the company's statements. The company supplies you with its income statement for the year ended December 31, 2013 and balance sheets of Universal Corporation at December 31, 2012 and December 31, 2013. The financial statements are drawn on the basis of U.S. GAAP but in the local currency of the subsidiary. The statements are as follows: 1 Universal Corporation Income Statement for the year ended December 31, 2013 Sales Revenue Expenses: Cost of goods sold Administrative and selling expenses Interest expense Depreciation Operating Income Transaction gain (loss) as Other income Income before tax Income tax Net Income Retained earnings (12/31/2012) 263,025.00 177,975.00 25,200.00 7,560.00 4,725.00 Dividend Retained earnings (12/31/2013) 215,460.00 47,565.00 1,968.75 49,533.75 -11,182.50 38,351.25 23,310.00 61,661.25 -4,725.00 56,936.25 Universal Corporation Balance Sheets 31-12-2012 Assets: Cash Accounts receivable Inventory Fixed Assets Accumulated depreciation Patents Total assets Liabilities and Stockholders' equity: Accounts payable Payable to parent Long-term debt Income tax payable Common stock Retained earnings 31-12-2013 16,695.00 45,517.50 47,880.00 69,300.00 -6,615.00 172,777.50 18,112.50 48,825.00 54,022.50 77,175.00 -11,340.00 1,102.50 187,897.50 25,357.50 36,225.00 70,875.00 1,260.00 15,750.00 23,310.00 21,813.75 20,632.50 63,000.00 1,890.00 23,625.00 56,936.25 2 Total Liabilities and stockholders' equity 172,777.50 187,897.50 Relevant exchange rates and other information are as follows: 1. Exchange rates: 12/31/2012 12/31/2013 2013 Average Average during 4th quarter 2012 Average during 4th quarter 2013 1 = $1.80 1 = $1.90 1 = $1.86 1 = $1.78 1 = $1.88 2. Common stock and long-term debt issued, and fixed assets purchased when the exchange rate was 1 = $1.40 3. Purchases and payment of dividends and taxes happened evenly throughout the year 2013. 4. End of the year Inventory represents the approximately last three months' production. 5. Due to parent account is denominated in U.S. dollars. 6. Exchange rate prevailing when the intangible asset (patent) was acquired and additional fixed assets purchased was $1.84 = 1. 7. Depreciate new fixed assets purchased during 2013 @ 20%. 8. Deferred taxes are translated at the current rate. Required: (a) Explain the concept and principles for determining the functional currency of a foreign subsidiary. (b) Translate the income statement and balance sheet of Universal Corporation following the temporal method and current rate method. 3