Allston, Inc., starts a subsidiary in a foreign country on January 1, 2016. The

Question

Allston, Inc., starts a subsidiary in a foreign country on January 1, 2016. The following account balances for the year ending December 31, 2017, are stated in kanquo (KQ), the local currency:

Sales KQ 200,000
Inventory (bought on 3/1/17) KQ 100,000
Equipment (bought on 1/1/16) KQ 80,000
Rent expense KQ 10,000
Dividends (declared on 10/1/17) KQ 20,000
Notes receivable (to be collected in 2020) KQ 30,000
Accumulated depreciation-equipment KQ 24,000
Salary payable KQ 5,000
Depreciation expense KQ 8,000

The following U.S. $ per KQ exchange rates are applicable:

January 1, 2016 $ 0.13
January 1, 2017 $ 0.18
March 1, 2017 $ 0.19
October 1, 2017 $ 0.21
December 31, 2017 $ 0.22
Average for 2016 $ 0.14
Average for 2017 $ 0.20

Allston is preparing account balances to produce consolidated financial statements.

REQUIRED:

a. Assuming that the kanquo is the functional currency, what exchange rate would be used to report each of these accounts in U.S. dollar consolidated financial statements?

b. Assuming that the U.S. dollar is the functional currency, what exchange rate would be used to report each of these accounts in U.S. dollar consolidated financial statements?

Explanation / Answer

Income Statement Assets Rates Amount Sales 200000 Inventory 100000 0.2 20000 Dividends 20000 Equipments (80000-24000) 56000 0.22 12320 Less: Rent 10000 Notes Receivable 30000 0.2 6000 Dividends 20000 Salary 5000 Depreciation 8000 Net Income in KQ 177000 Net Income in $ (177000*0.2) 35400

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