Question

Question 19 5 pts Xena Corporation has a foreign subsidiary, Zeta Corporation, located in Japan. At the end of fiscal 2016, Zeta has: Non-monetary assets Monetary assets Non-monetary liabilities Monetary liabilities 55 million Yen 20 million Yen 30 million Yen 25 million Yen Assume Xena uses the current rate method for translating Zeta's financial statements from the yen into U.S. dollars. If the yen appreciates relative to the dollar, which of the following is true? Xena will record a foreign currency translation loss on the income statement. Xena will record a foreign currency translation loss in the equity section of the balance sheet Xena will record a foreign currency translation gain in the equity section of the balance sheet. O Xena will record a foreign currency translation gain on the income statement.

Please solve for multiple choice in images.

Answer 1

	Q-19	Non monetory Assets	$55,000,000
		Monetory assets	$20,000,000
		Non-monetory Liabilities	$30,000,000
		Monetory Liabilities	$25,000,000
		Under current rate method all assets, liabilities are converted by using current rates prevailing on the date of financial statements.
		Any difference in balance sheet is transferred to Reserve in the balance sheet directly.
		Further, Common stock are recorded on historical rate only.
		Hence, option first and last is incorrect.
		Now yen is appreciating, and total of assets side is higher than total liabilitiy(excluding common stock), Hence after conversion there will a GAIN.
		Hence, option 3 is correct, Xena will record a foreign currency translation gain in the equity section of the balance sheet.
	Q-21	Non monetory Assets	$55,000,000
		Monetory assets	$20,000,000
		Non-monetory Liabilities	$30,000,000
		Monetory Liabilities	$25,000,000
		Under Temporal method only monetary assets and liabilities are converted using current rates.
		Further any gain or loss is recorded in the income statement.
		Here, in this case total of monetary liabilities are greater than monetory assets, and yen is appreciating, it implies there will be a LOSS.
		hence, option 4 is correct. Xena will record a foreign currency translation loss in the INCOME statement.

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