Concept explainers
(a)
Introduction: Translation is the method used to convert financial results of the business of subsidiary company into the functional currency of parent company.
Re-measurement: It is process to measure the financial results of any other currency into functional currency.
Cost of goods sold: It the value of the goods which is sold during the year. It the basic cost of the goods without profit element. It is calculated by adding opening stock and purchases during the year and subtracting the result by closing stock.
The re-measurement of cost of goods sold for the year 20X7 assuming U.S dollar is the functional currency.
(b)
Introduction: Translation is the method used to convert financial results of the business of subsidiary company into the functional currency of parent company.
Re-measurement: It is process to measure the financial results of any other currency into functional currency.
Cost of goods sold: It the value of the goods which is sold during the year. It the basic cost of the goods without profit element. It is calculated by adding opening stock and purchases during the year and subtracting the result by closing stock.
The translation of cost of goods sold for 20X7 assuming euro as the functional currency.
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Advanced Financial Accounting
- 1.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: Additional Information The receivable from Popular Creek is denominated in Swiss francs. Popular Creek's books show a $4,000 payable to RoadTime. Purchases of inventory goods are made evenly during the year. Items in the ending inventory were purchased November 1. Equipment is depreciated by the straight-line method with a 10-year life and no residual value. A full year's depreciation is taken in the year of acquisition. The equipment was acquired on March 1. The dividends were declared and paid on November 1. Exchange rates were as follows: The Swiss franc is the functional currency. anuary 1 1SFr=$.73 March 1 1SFr=$.74 November 1 1SFr=$.77 December 31 1SFr=$.80 20X1 Average…arrow_forwardXYZ, CO., placed an order for inventory costing 9,000,000 Euro with a foreign vendor on May 15 whenthe spot rate was 1 Euro = $1.165. XYZ received the goods on June 1 when the spot rate was 1 Euro =$1.173. Also on June 1, XYZ entered into a 90-day forward contract to purchase 9,000,000 Euro at aforward rate of 1 Euro = $1.182. Payment was made to the foreign vendor on September 1 when thespot rate was 1 Euro= $1.20. XYZ has a June 30 year-end. On that date, the spot rate was 1 Euro =$1.18, and the forward rate on the contract was 1 Euro= $1.187. Changes in the current value of theforward contract is measured as the present value of the changes in the forward rates over time and noseparate accounting is given the time value of the contract. The relevant discount rate is 6%. Prepare all relevant journal entries suggested by the above facts assuming that the hedge is designatedas a fair value hedge.arrow_forwardOn October 1, Year 7 Durian Co. of Quebec, ordered merchandise from MAGA Co. of US. The purchase price was determined to be $500,000 US. The merchandise was to be delivered on February 28th, Year 8 with payment due on delivery. On October 1, Year 7 Durian arranged a forward contract to purchase $500,000 US on February 28th, Year 8 at a rate of US 1 = $1.31. The merchandise was delivered on February 28th, Year 8, Durian purchased the US dollars from the bank and paid MAGA Co. Durian’s year-end is December 31st. Date Spot rate Forward rate October 1, Year 7 US 1 = $1.23 US 1 = $1.31 December 31, Year 7 US 1 = $1.21 US 1 = $1.33 February 28, Year 8 US 1 = $1.28 US 1 = $1.28 Required Assume the forward contract is designated as i) FV hedge ii) Cash Flow hedge iii) No hedge Prepare all JEsarrow_forward
- On September 1, 2016, Bain Corp. recorded a sale of inventory to a foreign customer for 300,000 LCU’s when the US dollar equivalent was $96,000. Bain did not enter into a forward contract. Bain shipped the inventory on October 15, 2016 when the US dollar equivalent was $100,000. Bain received the customer’s remittance in full on November 16, 2016, and sold the 300,000 LCU for $105,000. In its income statement for the year ended December 31, 2016, Bain should report as part of net income a foreign exchange transaction gain of: Select one: a. $0 b. $4,000 c. $5,000 d. $9,000arrow_forwardWaterCo, a U.S. corporation, purchases inventory for resale from unrelated distributors outside the U.S. It resells this inventory to U.S. customers with title passing inside the United States. What is the sourcing of WaterCo's inventory sales income? a.50% U.S. source and 50% foreign source. b.100% foreign source. c.50% foreign source and 50% sourced based on location of manufacturing assets. d.100% U.S. source.arrow_forwardAlpha Company, whose journal entry is in the dollar, purchased goods with an invoiced value of FC250,000 on 1 November 20x1 to be settled on 31 January 20x2. Alpha Company’s financial year end is 31 December. Exchange rates 1 November 20x1 1FC:$1.5 31 December 20x1 1FC:$1.45 31 January 20x2 1FC:$1.48 Prepare the journal entry for Alpha Company: (a)1 November 20x1-Purchase of goods: (b)31 December 20x1- Year-end adjustment for outstanding accounts payable: (c)31 January 20x2 – Settlement of accounts payable:arrow_forward
- Barefoot Co. purchased inventory from Nakasakasaka Co., a foreign supplier, on November 15, 20x1 for Y100,000, when the spot rate was P0.4295. On December 31, 20x1, the spot rate was P0.4245. Barefoot Co. settled the account on January 15, 20x2 when the spot rate was P 0.4345. Requirement: Provide the journal entries in 20x1 and 20x2arrow_forwardAgentel Corporation is a U.S.-based importing-exporting company. The company entered into the following transactions during the month of November. Nov. 6 Purchased merchandise from AGT, a Swiss firm, for 540,000 francs. 5 Sold merchandise to SLS, Inc., a firm located in Rio De Janeiro, for $200,000. 18 Sold merchandise to TNT, Ltd., a British firm, for 140,000 pounds. 20 Purchased merchandise from SDS, Ltd., a British firm, for $170,000. All the transactions were unsettled at December 31, Agentel’s fiscal year-end. Spot rates are as follows: Currency Date Franc Real Pound November 6 $0.490 $0.412 $1.520 November 15 0.487 0.409 1.509 November 18 0.476 0.414 1.506 November 20 0.468 0.405 1.498 December 31 0.460 0.398 1.482 (a) Your answer is correct. Compute the amount that Agentel would report for each unsettled receivable…arrow_forwardAgentel Corporation is a U.S.-based importing-exporting company. The company entered into the following transactions during the month of November. Nov. 6 Purchased merchandise from AGT, a Swiss firm, for 540,000 francs. 5 Sold merchandise to SLS, Inc., a firm located in Rio De Janeiro, for $200,000. 18 Sold merchandise to TNT, Ltd., a British firm, for 140,000 pounds. 20 Purchased merchandise from SDS, Ltd., a British firm, for $170,000. All the transactions were unsettled at December 31, Agentel’s fiscal year-end. Spot rates are as follows: Currency Date Franc Real Pound November 6 $0.490 $0.412 $1.520 November 15 0.487 0.409 1.509 November 18 0.476 0.414 1.506 November 20 0.468 0.405 1.498 December 31 0.460 0.398 1.482 (a) Compute the amount that Agentel would report for each unsettled receivable and payable in its balance sheet prepared…arrow_forward
- . Stark, Inc., placed anorder for inventory costing 500,000 FC with a foreign vendor on April 15 when the spot ratewas 1 FC ¼ $0.683. Stark received the goods on May 1 when the spot rate was 1 FC ¼ $0.687.Also on May 1, Stark entered into a 90-day forward contract to purchase 500,000 FC at a forward rate of 1 FC ¼ $0.693. Payment was made to the foreign vendor on August 1 when thespot rate was 1 FC ¼ $0.696. Stark has a June 30 year-end. On that date, the spot rate was1 FC ¼ $0.691, and the forward rate on the contract was 1 FC ¼ $0.695. Changes in thecurrent value of the forward contract are measured as the present value of the changes in theforward rates over time and no separate accounting is given the time value of the contract. Therelevant discount rate is 6%.1. Prepare all relevant journal entries suggested by the above facts assuming that the hedge isdesignated as a fair value hedge.2. Prepare a partial income statement and balance sheet as of the company’s June 30 year-endthat…arrow_forwardGAF manufactures electrical cells at its St. Louis facility. The company’s fiscal year-end is September 30. It has adopted the perpetual inventory cost flow method to control inventory costs. The company entered into the following transactions during the month of September. All exchange rates are direct quotations. Date Transaction BillingAmount Rate ofExchange 2014 Sept. 5 Exported 10 electrical cells to a companylocated in Argentina. Cost per unit, $1,140. 17,504 pesos $1.1291 9 Received raw materials ordered from a Britishcompany. The goods were shipped FOBdestination and had not been recorded on thebooks of GAF, Inc. 12,288 Pounds 1.6821 14 Exported 12 electrical cells to a companydomiciled in Norway. Cost per unit, $1,160. 161,303 Krone 0.1450 30 End of fiscal year-end. Peso 1.1091 British pound 1.6911 Krone 0.1530 Date Transaction…arrow_forwardGAF manufactures electrical cells at its St. Louis facility. The company’s fiscal year-end is September 30. It has adopted the perpetual inventory cost flow method to control inventory costs. The company entered into the following transactions during the month of September. All exchange rates are direct quotations. Date Transaction BillingAmount Rate ofExchange 2014 Sept. 5 Exported 10 electrical cells to a companylocated in Argentina. Cost per unit, $1,140. 17,504 pesos $1.1291 9 Received raw materials ordered from a Britishcompany. The goods were shipped FOBdestination and had not been recorded on thebooks of GAF, Inc. 12,288 Pounds 1.6821 14 Exported 12 electrical cells to a companydomiciled in Norway. Cost per unit, $1,160. 161,303 Krone 0.1450 30 End of fiscal year-end. Peso 1.1091 British pound 1.6911 Krone 0.1530 Date Transaction…arrow_forward