Question

On January 1, 20X1, Popular Creek Corporation organized RoadTime Company as a subsidiary in Switzerland with an initial investment cost of Swiss francs (SFr) 60,000. RoadTime’s December 31, 20X1, trial balance in SFr is as follows:

	Debit		Credit
Cash	SFr	7,000
Accounts Receivable (net)		20,000
Receivable from Popular Creek		5,000
Inventory		25,000
Plant & Equipment		100,000
Accumulated Depreciation			SFr	10,000
Accounts Payable				12,000
Bonds Payable				50,000
Common Stock				60,000
Sales				150,000
Cost of Goods Sold		70,000
Depreciation Expense		10,000
Operating Expense		30,000
Dividends Paid		15,000
Total	SFr	282,000	SFr	282,000

Additional Information
1.	The receivable from Popular Creek is denominated in Swiss francs. Popular Creek’s books show a $4,000 payable to RoadTime.
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 U.S. dollar is the functional currency for the foreign subsidiary.

Required: a Prepare a proof of the remeasurement gain or loss. (Amounts to be deducted should be entered with a minus sign. Round "exchange rate" answers to 2 decimal places.) POPULAR CREEK CORPORATION AND SUBSIDIARY Proof of Remeasurement Loss Year Ended Dec. 31, 20X1 Schedule 2 Analysis of Changes in Monetary Accounts Exchange U.S. Dollars Rate SFr Exposed net monetary asset Position - January 1 SFr Adjustments for changes in the net monetary position during the year Increases: From operations: Sales From other sources Decreases: From operations: Purchases Operating expenses in cash From dividends From purchase of plant and equipment Net monetary position prior to remeasurement at year-end rates 0 Exposed net monetary liability Position December 31 SFr 0

Answer 1

Roadtime company Trial Balance remeasurement Swiss francs US Dollars Rate Cash 0.8 7,000 5,600 Accounts Receivable (net) 20,000 0.8 16,000 Receivables from Popular Creek 5,000 0.8 4,000 S Inventory Plant and Equipment 25,000 0.77 19,250 0.74 74,000 100,000 Cost of Goods Sold (a) 70,000 52,00C Depreciation Expense 10,000 0.74 7,400 Operating Expense 30,000 0.75 22,500 Dividends Paid 0.77 S 11,550 15,000 Total 282.000.00 212,300 Remeasurement Loss 1,000 Total Debits 213,300 Accumulated Depreciation Accounts Payable 0.74 10,000 7,400.00 0.8 12,000 9,600.00 $ 40,000.00 $ 43,800,00 Bonds Payable 50,000 0.8 Common Stock 60,000 0.73 $ 112.500,00 Sales 0.75 150,000 Total Credits 282.000 S 213,300.00 U.S. Dollars Swiss Francs Rate (a) Cost of Goods Sold: 0.75 Beginning Inventory Purchases 95,000 0.75 71,250 Goods Available for Sale S 95,000 71,250 Less: Ending Inventory (25,000) (19,250) 0.77 Cost of Goods Sold 70,000 52,000 Popular creek corporation and subsidiary Statement of net monetary position End of Beginning of Year Year Monetary Assets 60,000 Cash 7,000 Accounts Receivable (net) 20,000 Receivables from Popular Creek 5,000 Total 60.000 32,000 Less Monetary Liabilities: Accounts Payable 12,000 Bonds Payable 50.000 (62,000) Total Net Monetary Assets 60,000 Net Monetary Liabilities Change in net monetary investment during 20X1 30,000 (90,000)

Analysis of Changes in Monetary Accounts U.S Exchange Dollars SFr Rate Exposed net monetary asset Position -January 1 Adjustments for changes in the net monetary position during the year Increases 0.73 $ 60,000.00 43,800 From Operations 0.75 $ Sales 150,000.00 112,500 From other sources Decreases: From operations: Purchases 0.75 $ 0.75 $ 0.77 $ (95,000.00) (30,000.00) (15,000.00) (71,250) (22,500) (11,550) (74,000) Cash expenses From dividends From purchase of plant 0.74 $ and equipment (100,000.00) Net monetary position prior to remeasurement S (23,000) at year-end rates Exposed net monetary liability Position 0.80 $ - December 31 (30,000.00) (24,000) (1,000) Remeasurement loss Note: The issuance of the bonds payable has no effect on net monetary assets. Cash, a monetary asset, is increased and bonds payable, a monetary liability, is increased. The Remeasurement Loss results from the decrease in the net monetary asset position during a period in which the exchange rate has increased. The end-of- period remeasured net liability position of $24,000 is more than the net monetary liabil ity position of $23,000 remeasured using the rates in effect at the times of the transactions.