Huggins Co. was formed on January 1, 2017 at Mars Kingdom as a wholly owned fore

Question

Huggins Co. was formed on January 1, 2017 at Mars Kingdom as a wholly owned foreign subsidiary of a U.S. corporation. Huggins' functional currency was the currency at Mars (FCU). The following transactions and events occurred during 2017:

      Jan 1  Huggins issued common stock for 1,000,000 FCU.

        June 30  Huggins paid dividends of 20,000 FCU.

        Dec 31  Huggins reported net income of 80,000 FCU for the year.

Exchange rates for 2017 were:

Jan 1       $1 = .46 FCU

June 30       $1 = .44 FCU

Dec 31        $1 = .40 FCU

           Weighted average rate for the year   $1 = .42 FCU

What exchange rate should have been used in translating Huggins' revenues and expenses for 2017?

A. $1 = .46 FCU.
B. $1 = .42 FCU.
C. $1 = .44 FCU.
D. $1 = .40 FCU.
E. $1 = .43 FCU.

Explanation / Answer

As per the rules given for translating the financial statements of an entity from functional currency into the reporting currency for consolidation purposes of a business.

Income statement items. Translate revenues, expenses, gains, and losses using the exchange rate as of the dates when those items were originally recognized.

In current case the transaction will be recognized at exchage rate given for $(Doller) to Mars (FCU) of the date of transaction and at the end of year while translating the net income will remeasure in the $(Doller) by average.

Exchage rate for tranalating = 40,800 / 1,00,000 = 0.408

Answer will be = D. $1 = .40 FCU

Amount Date Transaction Mars (FCU) Exchange Rate Doller ($) Jun-30 Paid dividends                   20,000 0.44                      8,800 Dec-31 Net Income                   80,000 0.40                   32,000 Total Income                1,00,000                   40,800

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

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