Gymson is an Italian subsidiary of U.S. company Universal Playgrounds, Inc. Gyms
ID: 2526134 • Letter: G
Question
Gymson is an Italian subsidiary of U.S. company Universal Playgrounds, Inc.
Gymson began operations on January 1,2018. Its comparative balance sheets for January 1 and December 31, 2018, are presented below in euros:
1/1/18 12/31/18
Cash and receivables € 10,000 € 20,000
Inventories, at cost 40,000 90,000
Noncurrent assets, net 700,000 530,000
Total assets €750,000 €640,000
Liabilities €550,000 €420,000
Capital stock 200,000 200,000
Retained earnings 0 20,000
Total liabilities and equity €750000 €640,000
During 2018, the following events occurred:
Sales revenue was €2,000,000, earned evenly during the year.
Inventory purchases were €1,200,000, made evenly over the year.
Out-of-pocket operating expenses were €650,000, incurred evenly throughout the year.
Depreciation expense on equipment was €170,000.
Dividends of €10,000 were declared and paid when the exchange rate was $1.52/€
REQUIRED: Calculate the translation gain/loss or the remeasurement gain/loss under each of the following assumptions. Be sure to clearly identify which it is and whether it is a gain or loss.
Assume Gymson’s functional currency is the euro.
Assume Gymson’s functional currency is the U.S. dollar.
Relevant exchange rates are as follows:
January 1, 2018 $1.40
2018 average 1.50
December 31, 2018 1.55
Explanation / Answer
When the functional currency is euro
20000
Cost of inventory consumed = 40000+1200000-90000
= 1150000
Profit = Sale-inventory consumed -operating expenses - depr. - dividend
=2000000-1150000-650000-170000-10000
=20000
When the functional currency is dollar
Sale 2000000*1.50 = 3000000$
Inventory consumed = (1200000*1.50)+56000-139500
= 1716500$
Operating Expenses = 650000*1.50 = 975000$
Depreciation = 170000*1.55 = 263500$
Dividend = 10000*1.52 = 15200$
Profit = 3000000-1716500-975000-263500-15200
= 29800$
Particular 1 Jan 2018 31 Dec 2018 Cash and Receivable 1000020000
Inventory 40000 90000 Non current asset 700000 530000 Total Asset ( A ) 750000 640000 Liability 550000 420000 Capital Stock 200000 200000 Retained Earning 0 20000 Total ( B ) 750000 640000Related Questions
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