Zugar Company is domiciled in a country whose currency is the dinar. Zugar begin
ID: 2573466 • Letter: Z
Question
Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2017 with three assets: cash of 20,000 dinars, accounts receivable of 80,000 dinars, and land that cost 200,000 dinars when acquired on April 1, 2016. On January 1, 2017, Zugar has a 150,000 dinar note payable, and no other liabilities. On May 1, 2017, Zugar renders services to a customer for 120,000 dinars, which was immediately paid in cash. On June 1, 2017, Zugar incurred a 100,000 dinar operating expense, which was immediately paid in cash. No other transactions occurred during the year. Currency exchange rates for 1 dinar follow:
April 1, 2016 $ 0.33 = 1 dinar
January 1, 2017 0.36 = 1
May 1, 2017 0.37 = 1
June 1, 2017 0.39 = 1
December 31, 2017 0.41 = 1
a) Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the dinar is the subsidiary’s functional currency. What is the translation adjustment for this subsidiary for the year 2017?
b) Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the U.S. dollar is the subsidiary’s functional currency. What is the remeasurement gain or loss for 2017?
c) Assume that Zugar is a foreign subsidiary of a U.S. multinational company. On the December 31, 2017, balance sheet, what is the translated value of the Land account? On the December 31, 2017, balance sheet, what is the remeasured value of the Land account? (Input all amounts as positive.)
a) Positive Translation adjustment = ?
b) gain remeasurement = ?
c) Translated value of land = 82,000 & Remeasured value of land = 66,000
Explanation / Answer
a) Translation adjsutment Calculation of Net Asset dinnar exchange rate Amount in $ Cash 20000 Accounts Receivable 80000 Land 200000 Less : Notes Payable 150000 as on April 1, 2017 Net asset 150000 as on January 1, 2017 Net Asset 150000 0.36 54000 Add : Cash received 120000 0.37 44400 Less : Cash paid 100000 0.39 39000 Net Asset A 170000 59400 as on December 31, 2017 Net asset B 170000 0.41 69700 Positive translation adjustment to be made B-A 10300 b) Gain Remeasurement will be as follows Only Monetary accounts has to be remeasured using the exchange rate at the end of the year So all adjustment in above will remain the same except land which has to be excluded for finding gain remeasurement. Calculation of Net Asset dinnar exchange rate Amount in $ Cash 20000 Accounts Receivable 80000 Less : Notes Payable 150000 as on April 1, 2017 Net asset -50000 as on January 1, 2017 Net Asset -50000 0.36 -18000 Add : Cash received 120000 0.37 44400 Less : Cash paid 100000 0.39 39000 Net Asset A -30000 -12600 as on December 31, 2017 Net asset B -30000 0.41 -12300 Remeasurement gain B-A 300 C) Answer given in Question is correct
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