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Chapter 10-17 - CHAPTER 10 TRANSLATION OF FOREIGN CURRENCY...

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CHAPTER 10 TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS Answers to Problems 36. (90 minutes) (Translate foreign currency financial statements using U.S. GAAP and explain sign of translation adjustment [remeasurement gain/loss].) Part I (a). Czech koruna is the functional currency—current rate method Exchange KCS Rate US$ Sales 25,000,000 0.035875,000 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) Other expenses (1,000,000 ) 0.035 (35,000 ) Net income 6,500,000 227,500 Retained earnings, 1/1/08 500,000 given 22,500 Dividends paid, 12/15/08 (1,500,000 ) 0.031 (46,500 ) Retained earnings, 12/31/08 5,500,000 203,500 Cash 2,000,000 0.030 60,000 Accounts receivable 3,300,000 0.030 99,000 Inventory 8,500,000 0.030 255,000 Equipment 25,000,000 0.030 750,000 Accum. deprec.—equipment (8,500,000) 0.030 (255,000) Building 72,000,000 0.030 2,160,000 Accum. deprec.—equipment (30,300,000) 0.030 (909,000) Land 6,000,000 0.030 180,000 Total assets 78,000,000 2,340,000 Accounts payable 2,500,000 0.030 75,000 Long-term debt 50,000,000 0.030 1,500,000 Common stock 5,000,000 0.050 250,000 Additional paid-in capital 15,000,000 0.050 750,000 Retained earnings, 12/31/08 5,500,000 above 203,500 Translation adjustment - to balance (438,500 )
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Total liabilities and equities 78,000,000 2,340,000
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36. (continued) Calculation of Translation Adjustment Translation adjustment, 2007 (negative) 202,500 Net assets, 1/1/08 20,500,000 0.040 820,000 Net income, 2008 6,500,000 0.035 227,500 Dividends, 12/15/08 (1,500,000 ) 0.031 (46,500 ) Net assets, 12/31/08 25,500,000 1,001,000 Net assets, 12/31/08 at current exchange rate 25,500,000 0.030 765,000 Translation adjustment, 2008 (negative) 236,000 Cumulative translation adjustment, 12/31/08 (negative) 438,500
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36. (continued) Part I (b). U.S. dollar is the functional currency—temporal method Exchange KCS Rate US$ Sales 25,000,000 0.035875,000 Cost of goods sold (12,000,000) Sched.A (493,500) Depreciation expense—equipment (2,500,000) Sched.B (118,000) Depreciation expense—building (1,800,000) Sched.C (85,200) Research and development expense (1,200,000) 0.035 (42,000) Other expenses (1,000,000 ) 0.035 (35,000 )
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