Foreign Currency Project.xlsx

Foreign Currency Project.xlsx - Diekmann Company a...

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Additional Information ∙ Other exchange rates for 1 Kčs follow: Diekmann Company, a U.S.-based company, acquired a 100 percent interest in Rakona A.S. in the Czech Republic on January 1, 2016, when the exchange rate for the Czech koruna (Kčs) was $0.05. Rakona’s financial statements as of December 31, 2017, two years later, follow: ∙ The January 1, 2017, beginning inventory of Kčs 6,000,000 was acquired on December 18, 2016, when the exchange rate was $0.043. Purchases of inventory were acquired uniformly during 2017. The December 31, 2017, ending inventory of Kčs 8,500,000 was acquired in the latter part of 2017 when the exchange rate was $0.032. All depreciable assets (equipment and buildings) were on the books when the subsidiary was acquired except for Kčs 5,000,000 of equipment acquired on January 3, 2017, when the exchange rate was $0.036, and Kčs 12,000,000 in buildings acquired on March 5, 2017, when the exchange rate was $0.034. Straight-line depreciation is 10 years for equipment and 40 years for buildings. A full year’s depreciation is taken in the year of acquisition. ∙ Dividends were declared and paid on December 15, 2017, when the exchange rate was $0.031.
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January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . .$0.040 Average 2017 . . . . . . . . . . . . . . . . . . . . . . . . . 0.035 December 31, 2017 . . . . . . . . . . . . . . . . . . . . .0.030 Part I. Translate the Czech koruna financial statements at December 31, 2017, in the following three situations: a. The Czech koruna is the functional currency. The December 31, 2016, U.S. dollar- translated balance sheet reported retained earnings of $22,500. The December 31, 2016, cumulative translation adjustment was negative $202,500 (debit balance). b. The U.S. dollar is the functional currency. The December 31, 2016, U.S. dollar-remeasured balance sheet reported retained earnings (including a 2016 remeasurement gain) of $353,000. c. The U.S. dollar is the functional currency. Rakona has no long-term debt. Instead, it has common stock of Kčs 20,000,000 and additional paid-in capital of Kčs 50,000,000. The December 31, 2016, U.S. dollar-remeasured balance sheet reported a negative balance in retained earnings of $147,000 (including a 2016 remeasurement loss). Part II. Explain the positive or negative sign of the translation adjustment in Part I(a) and explain why a remeasurement gain or loss exists in Parts I(b) and I(c).
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Part I(a). Czech koruna is the functional currency Current rate method Exchange Kcs Rate U.S. $ Sales 25,000,000 0.035 875,000 Cost of goods sold (12,000,000) 0.035 (420,000) Depreciation expense-equipment (2,500,000) 0.035 (87,500) Depreciation expense-building (1,800,000) 0.035 (63,000) Research and development expense (1,200,000) 0.035 (42,000)
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