Question

On January 1, 20X1, Popular Creek Corporation organized SunTime Company as a subsidiary in Switzerland with an initial investment cost of Swiss francs (SFr) 75,000. SunTime’s December 31, 20X1, trial balance in SFr is as follows:

	Debit				Credit
Cash	SFr	8,800
Accounts Receivable (net)		23,500
Receivable from Popular Creek		5,300
Inventory		25,500
Plant & Equipment		110,000
Accumulated Depreciation					SFr	11,700
Accounts Payable						13,800
Bonds Payable						51,000
Common Stock						75,000
Sales						153,600
Cost of Goods Sold		71,000
Depreciation Expense		11,700
Operating Expense		33,500
Dividends Paid		15,800
Total	SFr	305,100			SFr	305,100

Additional Information

1. The receivable from Popular Creek is denominated in Swiss francs. Popular Creek's books show a $4,300 payable to SunTime.
2. Purchases of inventory goods are made evenly during the year. Items in the ending inventory were purchased November 1.
3. Equipment is depreciated by the straight-line method with a 10-year life and no residual value. A full year’s depreciation is taken in the year of acquisition. The equipment was acquired on March 1.
4. The dividends were declared and paid on November 1.
5. Exchange rates were as follows:

	SFr		$
January 1	1	=	0.73
March 1	1	=	0.74
November 1	1	=	0.77
December 31	1	=	0.80
20X1 average	1	=	0.75

6. The Swiss franc is the functional currency.

Required:
a. Prepare a proof of the translation adjustment.

b. Where is the translation adjustment reported on Popular Creek’s consolidated financial statements and its foreign subsidiary? (Select all that apply.)

> Answer is not complete. POPULAR CREEK CORPORATION AND SUBSIDIARY Proof of Translation Adjustment Year Ended December 31, 20X1 US Dollars 12,166 Net assets at beginning of year Adjustment for changes in net asset position during year: Net income for year Dividends paid Net assets translated at: Rates during year Rates at end of year Change in other comprehensive income translation adjustment during year net increase Accumulated other comprehensive income translation adjustment January 1 Change in other comprehensive income translation adjustment December 31 (12,166) 12,166 S 12,166 b. Where is the translation adjustment reported on Popular Creek's consolidated financial statements and its foreign subsidiary? (Select all that apply.) Answer is complete and correct. Cash flow statement Statement of financial position Income statement Statement of comprehensive income O Statement of retained earnings

Answer 1

a.		Popular Creek Corporation and Subsidiary
		Proof of Translation Adjustment
		Year Ended December 31, 20X1
	SFr	Translation Rate	U.S. Dollars
Net assets at beginning of year	75000	0.73	$  54,750.00
Adjustment for changes in net asset position during year:
Net income for year (calculated below)	37400	0.75	$  28,050.00
Dividends paid	-15800	0.77	$ (12,166.00)
Net assets translated at:
Rates during year			$  70,634.00
Rates at end of year	96600	0.8	$  77,280.00
Change in other comprehensive income -   translation adjustment during year -   net increase			$    6,646.00
Accumulated other comprehensive   income — translation adjustment —   January 1			$               -
Change in other comprehensive income —   translation adjustment   December 31  (credit)			$    6,646.00