Question

Buch Corporation established a subsidiary in Romania on January 1, 2017 by investing Leu 3,200,000 when the exchange rate was $0.25/Leu. Josh Buch negotiated a bank loan of Leu 3,000,000 on January 5, 2017, and purchased plant and equipment in the amount of Leu 6,000,000 on January 8, 2017. The company depreciated plant and equipment on a straight-line basis over a 10 year useful life. It purchased it's beginning inventory of Leu 1,000,000 on January 10, 2017, and acquired additional inventory of Leu 4,000,000 at three points in time during the year at an average exchange rate of $0.22/Leu. It uses the first-in, first-out (FIFO) method to determine cost of goods sold. Additional exchange rates per Leu during the year 2017 follow: Jan1-31, 2017 Average 2017 December 31, 2017 $0.25 $0.22 $0.20 Cr Dr 1.000 2,000 6,000 The foreign subsidiary's trial balance at December 31, 2017, in thoursands of Leu's, follows: Cash Inventory Property, plant & equipment Accumulated depreciation Current liabilities Long-term debt Contributed capital Retained earnings. Beginning Sales Cost of goods sold Selling expense Depreciation expense Income tax expense Totals 600 1,500 3.000 3,200 0 5,000 600 300 13300 13 300 Required: You have determined that the Leu is the subsidiary's functional currency. a. In accordance with US GAAP, translated the foreign susidiary's Leu financial statements into U.S. dollars at December 31, 2017. b. Calculate the translation adjustment.

Answer 1

All Balance sheet Items need to be translated at year end rate that is $.20.

All P&L items need to be translated with avg rate that is $.22.

			Rate
Particular	Debit	Credit		Debit	Credit
Cash	1,000.00		0.2	200.00
Inventory	2,000.00		0.2	400.00
Property, Plant and Machinery	6,000.00		0.2	1,200.00
Accumulated Depreciation		600.00	0.2		120.00
Current Liabilities		1,500.00	0.2		300.00
Long-term Debt		3,000.00	0.2		600.00
Contributed Capital		3,200.00	0.2		640.00
Retained earnings beginning		-
Sales		5,000.00	0.22		1,100.00
Cost of goods sold	3,000.00		0.22	660.00
Selling Expense	400.00		0.22	88.00
Depreciation Expense	600.00		0.22	132.00
Income tax expense	300.00		0.22	66.00
Translation Adjustment				14.00
	13,300.00	13,300.00		2,760.00	2,760.00