ACCTG 102 Lecture Notes - Lecture 32: Comprehensive Income, United States Dollar, Situation Two

5 views4 pages

rosebutterfly172

31 Aug 2020

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Statement of comprehensive income, and statement of shareholders" equity - the cumulative exchange adjustment is part of other comprehensive income required to be reported. Comprehensive income = all changes in equity during a period except those resulting from owner investment and distributions. Situation 2: functional currency is the us dollar temporal method. Temporal method is used when company operates in highly inflationary economy or its books are maintained in currency other than functional: monetary assets and liabilities (cash, receivables, payables and most liabilities) are translated using current rate. See illustration 13-5 with temporal method, monetary items are translated at current rate while nonmonetary are translated at historical. Typical items remeasured using historical rates: inventories, prepaid expenses, pp+e, accumulated depreciation, patents etc. , gw, other intangibles, deferred credits on i/s cgs, depreciation, amortization. Requires company to maintain detailed records identifying purchase date and exchange rate.

Related Questions

Please answer all parts of the problem.

Palmerstown Company established a subsidiary in a foreigncountry on January 1, Year 1, by investing 8 million pounds whenthe exchange rate was $1.00/pound. Palmerstown negotiated a bankloan of 4 million pounds on January 5, Year 1, and purchased plantand equipment in the amount of 10 million pounds on January 8, Year1. Plant and equipment is depreciated on a straight-line basis overa 10 year useful life. The first purchase of inventory in theamount of 1 million pounds was made on January 10, Year 1.Additional inventory of 12 million pounds was acquired at threepoints in time during the year at an average exchange rate of$0.86/pound. Inventory on hand at year-end was acquired when theexchange rate was $0.83/pound. The first-in, first-out (FIFO)method i sused to determine cost of goods sold. Additional exchangerates for the pound during Year 1 are as follows:

Jan 1-31, Year 1 - $1.00

Average, Year 1 - $.90

Dec 31, Year 1 - $.80

The foreign subsidiary's income statement for Year 1 and balancesheet at December 31, Year 1, are as follows:

IncomeStatement
Forthe Year Ended December 31, Year 1
		Pounds
Sales		15,000
Costof goods sold		9,000
Gross profit		6,000
Selling/admin expense		3,000
Depreciation expense		1,000
Incomebefore tax		2,000
Income tax		600
Net income		1,400
Retained earnings, 1/1/Y1		-
Retained earnings, 12/31/Y1		1,400

BalanceSheet
December 31, Year 1
		Pounds
Cash		2,400
Inventory		4,000
Fixed assets		10,000
Less: accumdepn		(1,000)
Total assets		15,400
Currentliabilities		2,000
Long-termdebt		4,000
Contributedcapital		8,000
Retainedearnings		1,400
Translationadjustment
Totalliabilites/		15,400
stockholders'equity

As the Controller for Palmerstown Company, you have evaluatedthe characteristics of the foreign subsidiary to determine that thepound is the subsidiary's functional currency.

1.) Use an electronic spreadsheet to translate the foreignsubsidiary's financial statements into US dollars at December 31,Year 1, in accordance with US GAAP. Insert a row in the spreadsheetafter retained earnings and before total liabilities andstockholders' eequity for the cumulative translation adjustment.Calculate the translation adjustment separately to erify the amountobtained as a balancing figure in the translation worksheet.

2.) Use an electronic spreadsheet to translate the foreignsubsidiary's financial statements into US dollars at December 31,Year 1, assuming that the US dollar is the subsidiary's functionalcurrency. Inserta row in the spreadsheet after depreciation expenseand before income before taxes for the remeasurementgain/(loss)

3.) Prepare a report for the chief executive offer ofPalmerstown Company summarizing the differences that will bereported in the Year 1 consolidated financial statements becausethe pound, rather than the US dollar, is the foreign subsidiary'sfunctional currency. In your repoert, discuss the relationshipbetween the current ratio, the debt-to-equity ration, and theprofit margin calculated form the foeign currency financialstatments and from the translated US dollar financial statements.Also, include a discussion of the meaning of the translated USdollar amounts for inventory and for fixed assets.

Please answer all parts of the problem.

amaranthmink717

Please answer all parts of the question.

Jan 1-31, Year 1 - $1.00

Average, Year 1 - $.90

Dec 31, Year 1 - $.80

The foreign subsidiary's income statement for Year 1 and balancesheet at December 31, Year 1, are as follows:

IncomeStatement
Forthe Year Ended December 31, Year 1
		Pounds
Sales		15,000
Costof goods sold		9,000
Gross profit		6,000
Selling/admin expense		3,000
Depreciation expense		1,000
Incomebefore tax		2,000
Income tax		600
Net income		1,400
Retained earnings, 1/1/Y1		-
Retained earnings, 12/31/Y1		1,400

BalanceSheet
December 31, Year 1
		Pounds
Cash		2,400
Inventory		4,000
Fixed assets		10,000
Less: accumdepn		(1,000)
Total assets		15,400
Currentliabilities		2,000
Long-termdebt		4,000
Contributedcapital		8,000
Retainedearnings		1,400
Translationadjustment
Totalliabilites/		15,400
stockholders'equity

As the Controller for Palmerstown Company, you have evaluatedthe characteristics of the foreign subsidiary to determine that thepound is the subsidiary's functional currency.

Please answer all parts of the question.

amaranthpig755

ACCTG 102 Lecture Notes - Lecture 32: Comprehensive Income, United States Dollar, Situation Two

Document Summary

Get access

Related Documents

ACCTG 102 Lecture Notes - Lecture 29: Forward Rate, Accounts Receivable, Spot Contract

ACCTG 102 Lecture Notes - Lecture 31: Spot Contract, Swiss Franc

ACCTG 102 Lecture Notes - Lecture 30: Accounting, Historical Cost, Accounts Receivable

Related Questions