The Snail Company and American firm has a French subsidary \"Escargot Incorporat

Question

The Snail Company and American firm has a French subsidary "Escargot Incorporated" which follows IFRS and uses the Euro Below are the financial statements of Escargot Incorporated. These statements are prepared using U.S. GAAP and euros Income Statement Escargot Incorporated for the year ended December 31, 2017 sales 2,000,000.00 1,400,000.00 600,000.00 50,000.00 200,000.00 350,000.00 gross profit depreciation expense operating expenses Balance sheet Escargot Incorporated 31-Dec-17 Assets Liabilities: 50,000.00 200,000.00 300,000.00 400,000.00 50,000.00 cash accounts payable 30,000.00 accounts rec. note payable 100,000.00 equipment common stock 100,000.00 a/d equipment rle 670,000.00 total assets 900,000.00 Other information 1) When Snail Co. acquired the stock of Escargot, the Euro was worth $1.35 2) Retained earnings of Escargot on December 31, 2016 was $475000 3) When the equipment was purchased, the Euro was worth $1.44 4) On December 31, 2017 the Euro is worth $1.22 5) the average exchange rate for 2017 is 1 Euro $1.31 6) On December 31, 2016 the foreign currency translation adjustment was $88,000 REQUIRED A) PREPARE A BALANCE SHEET AND INCOME STATEMENT FOR ESCARGOT IN DOLLARS IF THE EURO IS THE FUNCTIONAL CURRENCY B) What was Escargot's comprehensive income for 2017 if the Euro is the functional currency? C) IF THE DOLLAR WAS THE FUNCTIONAL CURRENCY, WHAT WOULD ESCARGOT INCOME IN DOLLARS BE IN 2017?

Explanation / Answer

Income Statement Eur Ex rate USD Sales             2,000,000           1.31    1,526,718 COGS             1,400,000           1.31    1,068,702 Gross Profit                600,000           1.31       458,015 Depreciation                   50,000           1.31          38,168 Operating expenses                200,000           1.31       152,672 Income                350,000           1.31       267,176 Balance sheet Eur Ex rate USD Eur Ex rate USD Cash                   50,000           1.22          40,984 Accounts payable            30,000           1.22              24,590 Account rec                200,000           1.22       163,934 Notes payable          100,000           1.22              81,967 Inventory                300,000           1.22       245,902 Common stock          100,000           1.35              74,074 equipment                400,000           1.22       327,869 r/e          670,000           742,176 A/d equipment                   50,000           1.22          40,984 Foreign currency translation adjustment         (185,102)                900,000       737,705          900,000           737,705 Note:                       -   1. All assets and liabilities are translated at the closing rate 2. All Income statement items are translated at the average rate. 3. Retained earnings in US dollar has been calculated as follows:- Opening retained earnings $475,000 Add: profit for the year $267,176 Closing retained earnings $742,176 4. All resultant exchange difference is recognised as Foreign currency translation adjustment 5. Equity is translated at the historical rate i.e. rate on the date of transaction

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