6. P company a Mexican subsidiary of a US company, sold equipment costing 200,00

Question

6. P company a Mexican subsidiary of a US company, sold equipment costing 200,000 pesos with accumulated depreciation of 75,000 pesos for 140,000 pesos on 3/1/2018. The equipment was purchased on 1/1/2017. Relevant exchange rates for the peso are as follows:

1/1/2017 $0.110

3/1/2018 $0.106

12/31/2018 $0.102

Average 2018 $0.105

The financial statements for P are translated by its US parent. What amount of gain or loss would be reported in its translated income statement?

The financial statement for P are remeasured by its US parent. What amount of again of loss would be reported in its translated income statement?

Answers: $1590 and $1090

Show steps

Explanation / Answer

Solution a:

Financial statements for P are translated by Its US Parent:

Sale value of equipment = 140000 Pesos

Cost of equipment = 200000 pesos

Accumulated depreciation = 125000 Pesos

Book value of equipment = 200000 – 125000 = 75000 Pesos

Gain on sale of equipment = 140000 – 75000 = 15000 Pesos

Amount of gain or loss would be reported in its translated income statement = 15000 Pesos * exchange rate on date of sale

=15000 * 0.106 = $1,590

Solution b:

Financial Statement for P are remeasured by its US parent:

Original cost of equipment in dollar = 200000 Pesos * exchange rate on date of purchase

= 200000 * 0.110 = $22,000

Accumulated depreciation in dollar = 75000 Pesos * exchange rate on date of purchase

= 75000*0.110 = $8,250

Carrying value of equipment in dollar = $22,000 - $8,250 = $13,750

Sale value of equipment in dollar = 140000 pesos * exchange rate = 140000 * $0.106 = $14,840

Amount of again of loss would be reported in its translated income statement = $14,840 - $13,750 = $1,090

Related Questions

Navigate

• Browse (All)
• Browse 6
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.