4. S co. was formed on 1/1/2018 as a wholly owned foreign subsidiary of a US cor

Question

4. S co. was formed on 1/1/2018 as a wholly owned foreign subsidiary of a US corporation. S functional currency was stickle. The following transactions and events occurred during 2018:

1/1 S issued common stock of 1000,000 stickles

6/30 S paid dividends of 20,000 stickles

12/31 S reported net income of 80,000 S for the year

Exchange rate for 2018:

1/1 1 stickle=$0.42

6/30 1 stickle=$0.46

12/31 1 stickle=$0.48

Weighted average rate for the year 1 stickle=$0.44

What was the amount of the translation adjustment for 2018?

Answer: $60400 decrease in relative value of net assets. Show steps

5. a US company’s foreign subsidiary had the following amounts in stickles, the functional currency, in 2018: COGS=12000,000 stickles, ending inventory=600,000 stickles, beginning inventory=240,000 stickles. The average exchange rate during 2018 was 1 stickle= $0.96, the beginning inventory was acquired when the exchange rate was 1 stickle= $1.20. The ending inventory was acquired when the exchange rate was 1 stickle= $0.90. The exchange rate at 12/31/2018 was 1 stickle=$0.84. Assuming that the foreign nation for the subsidiary has highly inflationary economy, at what amount should that foreign subsidiary’s purchases have been reflected in the 2018 US dollar income statement?

Answer: $ 11865,600 show steps

Explanation / Answer

4.

[§1,000,000 × [$.42 - $.48] $.06 = ($60,000)] + [§20,000 × [$.46 - $.48] ($.02)] = ($400) = ($60400) decrease in Relative value of net asset.

5.

Beginning Inventory [(§240,000 × $1.20) $288,000] - Purchases [Beginning Inventory §240,000 - COGS §12,000,000 - Ending Inventory §600,000 = §12,360,000 × $.96 = $11,865,600]

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