CHAPTER 7 SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS
MULTIPLE CHOICE QUESTIONS
1.
a Remeasurement changes local currency accounts acco unts (euros) to the functional currency (krona). Translation Translation changes the functional currency accounts (krona) to the reporting currency (U.S. dollars).
2.
d Remeasure the equipment to U.S. dollars do llars using the rates when the equipment was purchased. (1!"""!""" # $1.%") & ('!"""!""" # $1.") $!*""!""". $!*"" !""".
'.
a
+eginning net assets (2""!""" & ,""!""") & et income (%!"""!""" / 2!'""!""" / '""!""" / 1!2""!""") i3idends 4nding net assets Translation loss %.
€ - " " !" " "
Rate 1 .%
U.S. $ 1!1,"!"""
2"" !""" (1""!""")
1 .' 1 .' 2
* " " !" " "
1 .'"
20"!""" (1'2!""") 1!2*-!""" 1!10"!""" 12-!"""
c €
+eginning net assets carried at fair 3alue (2""!""" / 1!%""!""") & Sales 5u 5urchases 62 62!'""!""" & (""!""" / %""!""")7 8ut of pocket e#penses i3idends 4nding net assets carried at fair 3alue (1-"!""" / 1!"-"!""") Remeasurement g Remeasurement gaain
Solutions Manual, Chapter 7
Rate
U.S. $
(1!2""!""") %!"""!""" (2!%""!""") (1!2""!""") (1""!""")
1 .% 1 .' 1 .' 1 .' 1 .' 2
(1!0%"!""") !%""!""" ('!2%"!""" (1!,2"!""") (1'2!""") (1!''2!""")
(*""!""")
1 .'"
(1!10"!""") 1,2!"""
©Cambridge Business Publishers, 2013 1
.
9 Translation multiplies multiplies the current ratio numerator and denominator den ominator 9y the same rate.
,.
c : steadily steadily weakening dollar means the direct rate is rising. Translated assets assets are multiplied 9y an increasing rate.
0.
9 The direct rate is falling. falling. 4ntry R de9its goodwill at the lower ending rate! and eliminates the remaining in3estment 9alance! created at a t higher rates! leading to a de9it to 8;<. 4ntry 8 credits goodwill at the ending rate and de9its impairment loss at the higher a3erage rate! leading to a credit to 8;<.
-.
c
Reported net income =oodwill impairment 4quity in net income
£ "" !"" " (2"!""") %- " !"" "
Rate 1 ., 1 .,
U.S. $ -2!""" (''!""") 0*2!"""
ote> the limited life intangi9les were written written off prior to 2"1. *.
9 (1"!"""!""" # %""@1"") # A"."1 A%""!""" U.S. =::5> (1"!"""!""" # A".") A""!"""
1".
d ?or noninflationary economies!
©Cambridge Business Publishers, 2013 2
Advaned Aounting, 2nd !dition
.
9 Translation multiplies multiplies the current ratio numerator and denominator den ominator 9y the same rate.
,.
c : steadily steadily weakening dollar means the direct rate is rising. Translated assets assets are multiplied 9y an increasing rate.
0.
9 The direct rate is falling. falling. 4ntry R de9its goodwill at the lower ending rate! and eliminates the remaining in3estment 9alance! created at a t higher rates! leading to a de9it to 8;<. 4ntry 8 credits goodwill at the ending rate and de9its impairment loss at the higher a3erage rate! leading to a credit to 8;<.
-.
c
Reported net income =oodwill impairment 4quity in net income
£ "" !"" " (2"!""") %- " !"" "
Rate 1 ., 1 .,
U.S. $ -2!""" (''!""") 0*2!"""
ote> the limited life intangi9les were written written off prior to 2"1. *.
9 (1"!"""!""" # %""@1"") # A"."1 A%""!""" U.S. =::5> (1"!"""!""" # A".") A""!"""
1".
d ?or noninflationary economies!
©Cambridge Business Publishers, 2013 2
Advaned Aounting, 2nd !dition
EXERCISES E7.1
Tran!at"#n an Re%ea&re Tran!at"#n Re%ea&re%ent %ent #' In(ent#r), In(ent#r), C#t #' #' Sa!e, Sa!e, P!ant P!ant Aet Aet an De*re+"at"#n
a.
(1) (2) (2)
9.
(1) (2)
2"!""" # $".2 $1"!%"" ;ost ;ost of sale saless in in R is> is> (1""! (1""!"" """ " & 0! 0!""" """ 2"! 2"!"" """) ") R1 R1! !""" """ 1!""" # $".%0 $ 0'!,2 2"!""" # $"." $1"!""" 5urchase 5urchase 4ndi 4n ding ng in3en n3enttory ory ;ost of sales
c.
1""!""" # $".% 0!""" # $"." (2"! (2"!"" """) ") # $". $"." "
$ % !"" " ' 0 ! " " (1"!" 1"!""" "") $ 0 2 !" "
5rop 5roper erty ty!! plan plantt and and equi equipm pment ent at ecem ecem9e 9err '1! '1! 2"1'! 2"1'! in S$! is as foll follow ows> s> 61!""!""" (')(1"!""")7 S$ 1!""!""" 6*""!""" (2)(*"!""")7 02"!""" 55B4! net S$ 1!00"!""" (1) (2) (2)
1!00"!""" # $".2 $*2*!2" (1" (1"!" !""" "" & *"! *"!"" """) ") # $". $". $1' $1'2! 2!"" """ "
d.
(1) (2)
(1!""!""" # $".,0) & (02"!""" # $".,2) $1!1-!0" (1"!""" # $".,0) & (*"!""" # $".,2) $10!""
E7.
Tran Tr an!at" !at"#n #n an Re%ea&r Re%ea&re%e e%ent nt -a"n #r L# L# Ca!+&!at" Ca!+&!at"#n #n an C#n#!" C#n#!"at" at"#n #n
a.
Re%ea&re%ent a"n #r !#
4#posed position! *@1"@1% 5urchase of equipment 8perating e#penses 4#posed position! 12@'1@1% Remeasurement gain (income statement) 9.
S/ S@ 1"!"""!""" (2!0""!""") (2!*""!""")
$/S/ " .'" " .' " " .'1
S@ %!%""!"""
" .''
S/ S@ 1"!"""!""" (2!*""!""")
$/S/ " .' " " .' 1
S@ 0!1""!"""
" .' '
$ $'!"""!""" (-1"!""") (-**!""") 1!2*1!""" 1!%2!""" $(1,1!""")
Tran!at"#n a"n #r !#
4#posed position! *@1"@1% 8perating e#penses 4#posed position! 12@'1@1% Translatio Translation gain (8;<)
Solutions Manual, Chapter 7
$ $'!"""!""" (-**!""") 2!1"1!""" 2!'%'!""" $(2%2!""")
©Cambridge Business Publishers, 2013 3
c.
-!#0e entr"e, re%ea&re%ent 4quity in net loss of su9
0'-!""" 0'-!"""
-!#0e entr"e, tran!at"#n 4quity in net loss of su9
-**!"""
,0!""" 2%2!"""
Re%ea&re%ent +#n#!"at"#n -!#0e S&0""ar) Dr 2Cr3 Dr 2Cr3 ;ash $ ""!""" $ 1!%2!""" 55B4 22!"""!""" -1"!"""
;apital R4! 9eg Re3enues 4quity in C 4#penses Remeasurement gain
(!"""!""") (2!"""!""") (1!"""!""")
" "
(;)
Cr
C#n#! $ 1!*2!""" 22!-1"!"""
0'-!""" '!"""!""" (4) (1,!"""!""" ) (!"""!""") (2!"""!""") (1!"""!""" )
('!"""!""") (4) '!"""!"""
0'-!""" 12!""!""" DDDDDDDD $
Dr
0'-!""" (;) -**!""" (1,1!""") $
"
DDDDDDDD DDDDDDDD $'!0'-!""" $'!0'-!"""
1'!'**!""" (1,1!""") $
"
Tran!at"#n +#n#!"at"#n
;ash 55B4
-!#0e S&0""ar) Dr 2Cr3 Dr 2Cr3 $ ""!""" $ 1!%2!""" 22!"""!""" -* 1 !""" 2!'%'!""" (1,!"""!""")
;apital R4! 9eg : 8; < Re3enues
(!"""!""") (2!"""!""") (2%2!""") (1!"""!""")
4quity in C 4#penses
-**!""" 12!""!""" $ "
©Cambridge Business Publishers, 2013 "
('!"""!""") (2%2!""")
-* * !""" $ "
Dr
(;)
C#n#! $ 1!*2!""" 22!-*1!"""
-**!""" '!2%2!""" (4)
(4) '!"""!""" (4)
Cr
2%2!"""
(1,!"""!""" ) (!"""!""") (2!"""!""") (2%2!""") (1!"""!""" )
-**!""" (;) DD DDD DD D D DDD DD DD 1'!'**!""" $%!1%1!""" $%!1%1!""" $ "
Advaned Aounting, 2nd !dition
Solutions Manual, Chapter 7
©Cambridge Business Publishers, 2013 #
E7.4
Tran!at"#n an Re%ea&re%ent #' A++#&nt Ba!an+e
a. ;ash
%!"""!""" # $.0
$'!"""!"""
(1) quantity acquired in Eanuary! 2"12F 1!"""!""" # $.- (2) quantity acquired in Eanuary! 2"1%F 2!"""!""" # $.0Total remeasured in3entory
$ -"!""" 1!,"!""" $2!%1"!"""
Gachinery and equipment are remeasured at historical rates. Remaining equipment purchased in Eanuary! 2"12F %!"""!""" # $.- 4quipment purchased in Eanuary! 2"1'F 0!"""!""" # $.-" Total remeasured machinery and equipment
$'!%""!""" !,""!""" $*!"""!"""
epreciation e#pense is remeasured at the same historical rate(s) used to remeasure the related machinery and equipment. epreciation e#pense on remaining Eanuary! 2"12 equipment> $.-(%!"""!"""@1") $ '%"!""" epreciation e#pense on Eanuary! 2"1' equipment> $.-"(0!"""!"""@1") ,"!""" Total remeasured depreciation e#pense $ *""!""" 9. ;ash
E7.5
%!"""!""" # $.0 $'!"""!""" '!"""!""" # $.0 $2!2"!""" 11!"""!""" # $.0 $-!2"!""" 1!1""!""" # $.0, $ -',!"""
Tran!at"#n an Re%ea&re%ent -a"n an L#
(in millions) a. A%#&nt 2£3 A 0"" (1!""") ('!"") ,!""" (1!2"")
$/£ A%#&nt2$3 4#posed position! 1@1@1% 1.*" $ 1!''" :cquisition of plant assets for de9t 1.* (1!*") 5urchase of in3entory 1.*0 (,!-*) Sales 1.*0 11!-2" 8perating e#penses 1.*0 (2!',%) 1!*%1 4#posed position! 12@'1@1% A 1!""" 2."1 2!"1" Remeasurement gain $ (,*) 8T4> The following items did not affect the remeasurement gain or loss> ©Cambridge Business Publishers, 2013 $
Advaned Aounting, 2nd !dition
1. 2. '. %.
;ollection of recei3a9les has no net effect one e#posed asset (recei3a9les) is simply replaced 9y another (cash). epreciation e#pense does not affect the e#posed position. Refinancing of commercial paper has no net effect one lia9ility is simply replaced 9y another. ;ost of goods sold does not affect the e#posed position.
9. A%#&nt 2£3 A 1!2"" 1!1""
4#posed position! 1@1@1% et income in 2"1% (,!""" / '!'"" / %"" 1!2"") 4#posed position! 12@'1@1% Translation gain
A 2!'""
E7.6
Tran!at"#n an Re%ea&re%ent -a"n an L#e
a.
Ca!+&!at"#n #' Re%ea&re%ent -a"n #r L#
Eanuar y 1! 2"1% 9eginning 9alance 5urchases +ook 3alue of land sale =ain on land sale Sales ;ash operating e#penses ecem9er '1! 2"1% ending 9alance 2"1% remeasurement gain (income) 9.
$/£ A%#&nt2$3 1.*" $ 2!2-" 1.*0 2!1,0 %!%%0 2."1 %!,2' $ (10,)
€ (12!"""!""") (-!"""!""") 0""!""" '""!""" 1"!"""!""" (1!-""!""")
$/€ 1.1' 1.1" 1.1 1.11 1.12 1.12
$ $(1'!,"!""") (-!-""!""") -"!""" '''!""" 11!2""!""" (2!"1,!""") (12!"'-!""") (11!--"!""") $ (1-!""")
(1"!-""!""")
1.1"
€ *!"""!"""
$/€ 1.1'
$ $1"!10"!"""
1.12
2!0,!""" 12!0%,!""" 12!%'"!""" $ '1,!"""
Ana!)" #' Tran!at"#n -a"n #r L#
4#posed position! 1@1@1% et income (1"!"""!""" & '""!""" ,!"""!""" / 1!-""!""" 2""!""") 4#posed position! 12@'1@1% 2"1% translation loss (8;<)
Solutions Manual, Chapter 7
2!'""!""" 11!'""!"""
1.1"
©Cambridge Business Publishers, 2013 7
E7.
E''e+t #' Tran!at"#n an Re%ea&re%ent #n Rat"#
(in thousands) a.
Rands
ret&rn #n aet 8 1!"""@-!""" 12.H
ret&rn #n a!e 1!"""@!""" 2"H
9 aet t&rn#(er # !"""@-!""" # ,2.H
$ (remeasurement)
1'"@2!""" ,.H
1'"@0" 10.'H
# #
0"@2!""" '0.H
$ (translation)
1"@1!%"" 1".0H
1"@0" 2"H
# #
0"@1!%"" '.,H
Translation maintains the local currency relationships 9etter than remeasurement. 9.
The direct e#change rate appears to 9e falling with the dollar strengthening and the rand weakening. This can 9e seen 9y o9ser3ing that remeasured assets of $2!"""!""" (remeasured at historical rates) are higher than translated assets of $1!%""!""" (translated at a3erage of 9eginning and ending current rates). Similarly! remeasured operating income of $1'"!""" is lower than translated operating income of $1"!"""! due to depreciation and amortiIation e#penses 9eing remeasured at higher historical rates when the functional currency is the $. The declining e#change rate causes the u5ont analysis performance measures to 9e distorted 9y the changing e#change rate.
©Cambridge Business Publishers, 2013 %
Advaned Aounting, 2nd !dition
E7.7
Re%ea&re :"nan+"a! State%ent
Sales ;ost of goods sold 8perating e#penses epreciation e#pense :mortiIation e#pense Remeasurement gain et income
Me9"+# C"t) S&0""ar) State%ent #' In+#%e :#r t;e
$ $ 1!%%"!""" (-%"!""") (',"!""") (-!2") (,!""") %2!""" $ ,"!0"
;ash
Me9"+# C"t) S&0""ar) Ba!an+e S;eet De+e%0er 41, =14 P 5 -!0""!""" 2!"""!""" *2!""" 2%"!""" 5 11!-,!"""
$ $ 1!'"!""" 22"!""" 1"1!0" 2%!""" $ 1!,"!0"
;apital Retained earnings Total equity
5 1"!"""!""" 1!-,!""" 5 11!-,!"""
$/P ".1 ".11 ".11 ".1"
".1" see a9o3e
Ca!+&!at"#n #' Re%ea&re%ent -a"n P $/P 4#posed position! 1@2@1' (cash) 5 1"!"""!""" ".1" Sales 12!"""!""" ".12 8rganiIation costs ('""!""") ".1" 4quipment purchase (1!"""!""") ".11 Gerchandise purchase (2!"""!""") ".11 Gerchandise purchase (0!"""!""") ".12 ;ash operating e#penses ('!"""!""") ".12
4#posed position! 12@'1@1' Remeasurement gain (income)
Solutions Manual, Chapter 7
5 -!0""!"""
".1
$ 1!"""!""" ,"!0" $ 1!,"!0"
$ $ 1!"""!""" 1!%%"!""" ('"!""") (11"!""") (22"!""") (-%"!""") (',"!""") --"!""" 1!'"!""" $ (%2!""")
©Cambridge Business Publishers, 2013 &
E7.>
C;ane "n :&n+t"#na! C&rren+)
4#posed position! Eanuary 1 et income i3idends 4#posed position! ecem9er '1 Translation loss +alance! 1@1@1% (gain) (1) +alance! 12@'1@1% (gain)
C$ ;$ 2"!"""!""" 2!""!""" (1!"""!""")
$/C$ 1." 1."' 1."2
;$ 21!""!"""
1."1
(1) Translated net assets> $1." # 2"!"""!""" Cess remeasured net assets +eginning 9alance of translation adJustment account 1@1@1% (gain)
E7.?
$ $21!"""!""" 2!0!""" (1!"2"!""") 22!!""" 21!01!""" -%"!""" (,!"""!""") $ (!1,"!""")
$ 21!"""!""" (1!"""!""") $ ,!"""!"""
Tran!ate/Re%ea&re :"nan+"a! State%ent
a.
Sales ;ost of goods sold epreciation e#pense 8ther e#penses et income
In+#%e State%ent 2Tran!ate3 SAR S:R -!"""!""" (%"!"""!""") (1"!"""!""") (1!"""!""") S:R 2"!"""!"""
Ba!an+e S;eet 2Tran!ate3 SAR ;ash S:R *!"""!"""
©Cambridge Business Publishers, 2013 10
$/SAR .2, .2, .2, .2,
$/SAR .2 .2 .2
.'" (1) (2)
$ $ 22!2!""" (1"!,""!""") (2!,"!""") ('!*0!""") $ !'""!"""
$ $ 2'!0"!""" ,!2"!""" 22!""!""" $ 2!""!""" $ ,"!"""!""" 2!0"!""" (1"!2"!""") $ 2!""!"""
Advaned Aounting, 2nd !dition
213 Ana!)" #' Reta"ne Earn"n 2Tran!ate3
et income i3idends Retained earnings! 12@'1@1'
SAR $/SAR S:R 2"!"""!""" .2, (1"!"""!""") .2 S:R 1"!"""!"""
$ $ !'""!""" (2!"!""") $ 2!0"!"""
SAR $/SAR S:R 2""!"""!""" .'"" 2"!"""!""" .2, (1"!"""!""") .2
$ $,"!"""!""" !'""!""" (2!"!""") ,2!0"!""" 2!""!""" $1"!2"!"""
23 Ana!)" #' Tran!at"#n L#
4#posed position! 1@1@1' et income i3idends 4#posed position! 12@'1@1' 2"1' translation loss
S:R 21"!"""!"""
.2"
9.
Sales ;ost of goods sold epreciation e#pense 8ther e#penses Remeasurement loss et income
;ash
Solutions Manual, Chapter 7
In+#%e State%ent 2Re%ea&re3 SAR S:R -!"""!""" (%"!"""!""") (1"!"""!""") (1!"""!""") DDDDDDDDDD S:R 2"!"""!"""
$/SAR .2, .'"" .'"" .2, (')
$ $ 22!2!""" (12!"""!""") ('!"""!""") ('!*0!""") ('!20!""") $ 20!"""
Ba!an+e S;eet 2Re%ea&re3 SAR S:R *!"""!""" 2!"""!""" *"!"""!""" S:R 21"!"""!"""
$/SAR .2 (%) .'"
$ $ 2'!0"!""" ,!*0!""" 20!"""!""" $ 0!02!"""
.'" ()
$ ,"!"""!""" (2!20!""") $ 0!02!"""
S:R 2""!"""!""" 1"!"""!""" S:R 21"!"""!"""
©Cambridge Business Publishers, 2013 11
243 Ana!)" #' Re%ea&re%ent L# SAR S:R "!"""!""" -!"""!""" (1!"""!""") (1!"""!""") (1"!"""!""")
$/SAR .'"" .2, .2, .2, .2
S:R *!"""!"""
.2"
253 Re%ea&re%ent #' 1/41/14 In(ent#r) Ba!an+e SAR
$/SAR .'" .2,
$ $ '!"""!""" '!*0!""" $ ,!*0!"""
263 Ana!)" #' Reta"ne Earn"n 2Re%ea&re3 SAR et income S:R 2"!"""!""" i3idends (1"!"""!""") Retained earnings! 12@'1@1' S:R 1"!"""!"""
$/SAR <@S .2
$ $ 20!""" (2!"!""") $(2!20!""")
4#posed position! 1@1@1' Sales 5urchases ;ash e#penses i3idends 4#posed position! 12@'1@1' 2"1' remeasurement loss
$ $ 1!"""!""" 22!2!""" ('!*0!""") ('!*0!""") (2!"!""") 20!"2!""" 2'!0"!""" $ '!20!"""
E7.1= E9+;ane Rate C;ane an Ret&rn #n Aet
a.
9.
Ret&rn #n Aet 2===,=== #%"tte3 $ 2"1% 12@.(112 & *) .11, 2"1 1".-*@.(* & *) .11 ote> 1" [email protected] 12.1 1".-*@.*F -" 112@1.%
€ 1"@.(-" & *) .11% 12.1@.( *& *) .120
:lthough the R8: 9ased on euro data increased 9y 11.%H 6 (.120 .11%)@.11%7! translated data produced an R8: that declined slightly o3er the period. This distortion created 9y translation can 9e attri9uted to two factors. 1.
The declining a3erage e#change rate caused translated operating income to fall 9y *.'H 6 (1".-* 12)@127 e3en though euro income rose 9y 21H. Thus the numerator of the euro R8: rose while the numerator of the translated R8: fell.
2.
Translated a3erage total assets decreased 9y -.2H 6 (* 1"'.)@1"'.7! whereas a3erage euro assets increased 9y -.,H 6 (* -0.)@-0.7. This increased the denominator of the euro R8: relati3e to the translated R8:.
The net effect of the changing e#change rate on euro income and a3erage total assets ©Cambridge Business Publishers, 2013 12
Advaned Aounting, 2nd !dition
creates a di3ergence 9etween the euro R8: which suggests impro3ed profita9ility of the asset portfolio and the slightly weakening R8: 9ased on translated data. Since the euro is the entityKs functional currency! the entityKs financial performance is 9est measured 9y euro data.
E7.11 C#%*ar"#n #' Tran!at"#n an Re%ea&re%ent
a.
The direct e#change rate has 9een steadily increasing. This means that many remeasured e#penses are lower than translated e#penses! since historical rates are lower than a3erage rates. Since Sears ;anada has a positi3e e#posed position for remeasurement! the increase in rate will result in a remeasurement gain on the income statement. ?or these reasons! remeasured income is higher than translated income.
9.
Remeasured assets are lower than translated assets since historical rates are lower than the current rate. ?rom a9o3e! remeasured income is higher than translated income. These factors com9ine to show remeasured R8: as greater than translated R8:.
c.
Remeasured current assets may 9e slightly lower than translated current assets! as in3entories and possi9ly prepaids would 9e remeasured at lower historical rates. ;urrent lia9ilities are likely to 9e the same under 9oth methods. Therefore the remeasured current ratio is lower than the translated current ratio. Remeasured and translated de9t should 9e the same. Remeasured total assets are lower since the older noncurrent assets are remeasured at lower historical rates. Thus remeasured de9t to assets is higher than translated de9t to assets.
Solutions Manual, Chapter 7
©Cambridge Business Publishers, 2013 13
E7.1 Ca; :!#@ State%ent C#n(er"#n T;e L&; C#%*an) State%ent #' Ca; :!#@ :#r t;e
(in thousands) NT$
$/NT$
$
T$ 1""!"""!"""
."%""
$ %!"""!"""
%!"""!"""
."%""
1!-""!"""
."%""
(1,"!""")
O*erat"n A+t"("t"e
et income epreciation and amortiIation e#pense =ain on sale of longterm in3estments
(%!"""!""")
ecrease in other current operating assets
2%!"""!"""
."%""
*,"!""" &
ecrease in current operating lia9ilities
('2!"""!""")
."%""
(1!2-"!""")&
;ash pro3ided 9y operating acti3ities
1''!"""!"""
!'2"!"""
In(et"n A+t"("t"e
:cquisition of plant assets
(-!"""!""")
."%2'
('!*!"")
Sale of longterm in3estments
"!"""!"""
."'*%
1!*0"!"""
;ash used in in3esting acti3ities
('!"""!""")
(1!,2!"")
:"nan+"n A+t"("t"e
Retirement of longterm de9t
(*-!"""!""") 10"!"""!""" (,!"""!""")
."'*%
('!-,1!2"")
."%2'
0!1*1!"""
."%""
(2!,""!""")
0!"""!"""
02*!-"" (**!'"")L
21"!"""!"""
."%2"
-!-2"!"""
T$ '1!"""!"""
."'*"
$12!2-!"""
These adJustments to income are for items (1) included in income 9ut not using cash (depreciation! decrease in other current operating assets) or are no t operating flows (gain on sale of in3estments) or are (2) not included in income (decrease in current operating lia9ilities) 9ut using cash. :ll such items are translated at the rates used for them in the income statement.
©Cambridge Business Publishers, 2013 1"
Advaned Aounting, 2nd !dition
L 4ffect of e#change rate changes on cash> +eginning e#posed position (cash) ;ash pro3ided 9y operations> et income epreciation and amortiIation e#pense =ain on sale of longterm in3estments ecrease in other current assets ecrease in current operating lia9ilities Sale of longterm in3estments 5roceeds from stock issuance ecreases in cash> :cquisition of plant assets Retirement of longterm de9t i3idends paid
4nding e#posed position (cash) Translation loss on cash
NT$ T$ 21"!"""!"""
$/NT$ ."%2"
1""!"""!""" %!"""!""" (%!"""!""") 2%!"""!""" ('2!"""!""") 1''!"""!""" "!"""!""" 10"!"""!""" 22"!"""!"""
."%"" ."%"" ."%"" ."%"" ."%""
(-!"""!""") (*-!"""!""") (,!"""!""") (2%-!"""!""")
."%2' ."'*% ."%""
T$ '1!"""!"""
."'*% ."%2'
$ $ -!-2"!"""
%!"""!""" 1!-""!""" (1,"!""") *,"!""" (1!2-"!""") !'2"!""" 1!*0"!""" 0!1*1!""" *!1,1!"""
('!*!"") ('!-,1!2"") (2!,""!""") (1"!",!0"") 1'!2%%!'"" ."'*" 12!2-!""" $ **!'""
E7.14 C#n#!"at"#n #' an Internat"#na! S&0""ar) at Date #' A+&""t"#n
5rice paid +ook 3alue Under3aluation of in3entories 83er3aluation of noncurrent assets =oodwill
P 5 1-"!"""!""" (1""!"""!""") (1!"""!""") !"""!""" 5 0"!"""!"""
$/P ".1" ".1" ".1" ".1"
U.S.$ $ 1-!"""!""" (1"!"""!""") (1!""!""") ""!""" $ 0!"""!"""
4ntries to consolidate the 9alance sheets of parent and su9sidiary (amounts are in U.S. dollars)> (4) ;apital stock -!"""!""" Retained earnings 2!"""!"""
Solutions Manual, Chapter 7
©Cambridge Business Publishers, 2013 1#
PROBLEMS P7.1
Tran!at"n an Re%ea&r"n Se!e+te A++#&nt
(in millions) a. TE&r#*e ARe%ea&re%ent #' Se!e+te A++#&nt "nt# D#!!ar De+e%0er 41, =1 an De+e%0er 41, =14 De+e%0er 41, =14 CH: $/CH: :ccounts recei3a9le (net) ;M? %"!""" .,0
$ $ 2,!-"" %,!%"" -,!"*" ,0!""" 2!"""
$ 2"!'"" '0!"" 0!""" ,*!,"" 2!"""
Schedule 1 Re%ea&re%ent #' Pr#*ert), P!ant, an E&"*%ent 2Net3 "nt# U.S. D#!!ar at De+e%0er 41, =14 CH: $/CH: $ Cand purchased on 1@1@12 ;M? 2%!""" ." $ 12!""" 5lant and equipment purchased on 1@1@12> 8riginal cost 1%"!""" ." 0"!""" :ccumulated depreciation (2-!""") ." (1%!""") 112!""" ,!"""
5lant and equipment purchased on 0@%@1'> 8riginal cost :ccumulated depreciation Total property! plant and equipment
©Cambridge Business Publishers, 2013 1$
'"!""" ('!""") 20!""" ;M? 1,'!"""
.,0 .,0
2"!1"" (2!"1") 1-!"*" $ -,!"*"
Advaned Aounting, 2nd !dition
9. TE&r#*e ATran!at"#n #' Se!e+te A++#&nt "nt# D#!!ar De+e%0er 41, =14 an De+e%0er 41, =1 De+e%0er 41, =14 CH: $/CH: :ccounts recei3a9le (net) ;M? %"!""" .,0
P7.
$ $ 2,!-"" '!,"" 1"*!21" ,0!""" 2!"""
$ 2"!'"" %'!"" -0!""" ,*!,"" 2!"""
E9"t"n S&0""ar)Re%ea&re%ent
a. a!"ant C#r*#rat"#n Re%ea&re Tr"a! Ba!an+e at an&ar) 1, =14 A++#&nt Fr ;ash kr 10!""" :ccounts recei3a9le! net %""!""" 5lant and equipment! net 2!'2"!""" :ccounts paya9le ('!""") otes paya9le (-""!""") ;apital stock (%""!""") Retained earnings! Eanuary 1! 2"1' (1!1,"!""") kr "
Solutions Manual, Chapter 7
$/Fr .1, .1, .1, .1, .1, .1, .1,
$ $ 2-!""" ,%!""" '01!2"" (-!,"") (12-!""") (,%!""") (1-!,"") $ "
©Cambridge Business Publishers, 2013 17
a!"ant C#r*#rat"#n Re%ea&re Tr"a! Ba!an+e at De+e%0er 41, =14 A++#&nt Fr $/Fr ;ash kr 2%"!""" .1* :ccounts recei3a9le! net ',"!""" .1* 5lant and equipment! net 2!"""!""" .1, :ccounts paya9le (2""!""") .1* otes paya9le (,""!""") .1* ;apital stock (%""!""") .1, Retained earnings! Eanuary 1! 2"1' (1!1,"!""") .1, Sales (1!2""!""") .10 epreciation e#pense '2"!""" .1, 8ther e#penses ,%"!""" .10 see Remeasurement loss DDDDDDD sch. kr " a!"ant C#r*#rat"#n Re%ea&re%ent L# '#r =14 Fr 4#posed position! Eanuary 1 kr (0,"!""")1 Sales 1!2""!""" 8ther e#penses (,%"!""")
$/Fr .1, .10 .10
4#posed position! ecem9er '1 kr (2""!""") .1* Remeasurement loss 1 et e#posure 1@1@1'> (0,"!""") 10!""" & %""!""" '!""" -""!""" 2 et e#posure 12@'1@1'> (2""!""") 2%"!""" & ',"!""" 2""!""" ,""!"""
©Cambridge Business Publishers, 2013 1%
$ $ %!,"" ,-!%"" '2"!""" ('-!""") (11%!""") (,%!""") (1-!,"") (2"%!""") 1!2"" 1"-!-""
$
11!,"" "
$ $ (121!,"") 2"%!""" (1"-!-"") (2,!%"") ('-!""") $ 11!,""
Advaned Aounting, 2nd !dition
9. a!"ant C#r*#rat"#n Re%ea&re In+#%e State%ent :#r t;e
Sales epreciation e#pense 8ther e#penses Total 4#penses 8perating income Remeasurement loss et
$2"%!""" $ 1!2"" 1"-!-"" $1,"!""" $ %%!""" 11!,"" $ '2!%"" a!"ant C#r*#rat"#n Re%ea&re Ba!an+e S;eet De+e%0er 41, =14
Aet ;ash :ccounts recei3a9le! net 5lant and equipment! net Total assets L"a0"!"t"e an St#+F;#!er E&"t) :ccounts paya9le otes paya9le ;apital stock Retained earnings ($1-!,""& $'2!%"") Total lia9ilities and stockholdersK equity
Solutions Manual, Chapter 7
$ %!,"" ,-!%"" '2"!""" $ %'%!""" $ '-!""" 11%!""" ,%!""" 21-!""" $ %'%!"""
©Cambridge Business Publishers, 2013 1&
P7.4
E9"t"n S&0""ar)Tran!at"#n
a. a!"ant C#r*#rat"#n Tran!ate Tr"a! Ba!an+e at an&ar) 1, =14 A++#&nt Fr $/Fr ;ash kr 10!""" .1, :ccounts recei3a9le! net %""!""" .1, 5lant and equipment! net 2!'2"!""" .1, :ccounts paya9le ('!""") .1, otes paya9le (-""!""") .1, ;apital stock (%""!""") .1, Retained earnings! 1@1@1' (1!1,"!""") .1, :ccumulated other comprehensi3e income kr "
$ $ 2-!""" ,%!""" '01!2"" (-!,"") (12-!""") (,%!""") (1-2!%"") $ "
a!"ant C#r*#rat"#n Tran!ate Tr"a! Ba!an+e at De+e%0er 41, =14 A++#&nt Fr $/Fr ;ash kr 2%"!""" .1* :ccounts recei3a9le! net ',"!""" .1* 5lant and equipment! net 2!"""!""" .1* :ccounts paya9le (2""!""") .1* otes paya9le (,""!""") .1* ;apital stock (%""!""") .1, Retained earnings! 1@1@1' (1!1,"!""") .1, Sales (1!2""!""") .10 epreciation e#pense '2"!""" .10 8ther e#penses ,%"!""" .10 see :ccumulated other comprehensi3e gain sch. kr " Ana!)" #' Tran!at"#n AG&t%ent Fr et assets! Eanuary 1 (%""!""" & 1!1,"!""") kr 1!,"!""" et income! 2"1' (1!2""!""" '2"!""" ,%"!""") 2%"!"""
et assets! ecem9er '1 Translation gain ;umulati3e translation ad Justment! Eanuary 1 ;umulati3e translation gain! ecem9er '1
©Cambridge Business Publishers, 2013 20
kr 1!-""!"""
$ $ %!,"" ,-!%"" '-"!""" ('-!""") (11%!""") (,%!""") (1-!,"") (2"%!""") %!%"" 1"-!-""
$
$/Fr .1, .10
.1*
(1!,"") "
$ $2%*!,"" %"!-"" 2*"!%"" '%2!""" (1!,"") $(1!,"")
Advaned Aounting, 2nd !dition
9. a!"ant C#r*#rat"#n Tran!ate In+#%e State%ent :#r t;e
Sales epreciation e#pense 8ther e#penses Total e#penses et income
$2"%!""" $ %!%"" 1"-!-"" $1,'!2"" $ %"!-"" a!"ant C#r*#rat"#n Tran!ate Ba!an+e S;eet De+e%0er 41, =14
Aet ;ash :ccounts recei3a9le! net 5lant and equipment! net Total assets L"a0"!"t"e an t#+F;#!er e&"t) :ccounts paya9le otes paya9le ;apital stock Retained earnings ($1-!,"" & $%"!-"") :ccumulated other comprehensi3e income Total lia9ilities and stockholdersK equity
Solutions Manual, Chapter 7
$ %!,"" ,-!%"" '-"!""" $ %*%!""" $ '-!""" 11%!""" ,%!""" 22,!%"" 1!,"" $ %*%!"""
©Cambridge Business Publishers, 2013 21
P7.5
Tran!at"#n an Per'#r%an+e E(a!&at"#n
a.
=15 € $/€ 2!""" 1.% 1!2"" 1.% -"" 2"" 1.% ,"" 1-" 1.% %2"
$ $2!*"" 1!0%" 1!1," 2*" -0" 2,1 $ ,"*
Translated net income shows a '2H increase on a 12H increase in sales. This picture is less fa3ora9le than that depicted in euros. 9.
Remeasured net income increases 9y a9out ',H! as shown 9elow. Re%ea&re%ent +#%*ar"#n =16 =15 (in thousands) € $/€ $ € $/€ Sales 2!%"" 1.' $ '!2%" 2!""" 1.% ;ost of sales 1!'2" 1.'0 1!-"-.% 1!2"" 1.%=ross margin 1!"-" 1!%'1., -"" 8ther operating e#penses 2'" 1.'0 '1.1 2"" 1.%5rofit 9efore ta#es -" 1!11,. ,""
©Cambridge Business Publishers, 2013 22
$ $2!*"" 1!00, 1!12% 2*, -22,1 $ ,0
Advaned Aounting, 2nd !dition
c.
The 9asic pro9lem with internal performance e3aluation 9ased on either translated or remeasured data is that management is 9eing Judged in part on an important factor that it cannot controlthe e#change rate. Goreo3er! 9ecause the e#change rate changes each year! Ncomparati3eN data tend to 9ecome incompara9le. :t least two approaches could 9e considered. ?irst! pro9a9ly the most o93ious approach to a3oiding e#change rate distortions is to use the euro data! particularly when the euro is the entityKs functional currency. Migh inflation rates or changes in prices of the goods and ser3ices 9ought and sold 9y the entity weaken the compara9ility of the comparati3e euro data. : second approach in3ol3es remo3ing the effect of yeartoyear e#change rate changes. Ohen the functional currency is the euro! the 2"1 euro results can 9e translated at the 2"1% a3erage $@ rate. Under this approach! 2"1 income of * translated at the 2"1% rate of $1.%@ amounts to $-,'! an increase of %2H o3er 2"1%Ks $,"*. Ohen the functional currency is the U.S. dollar! 9oth the a3erage rate for 2"1% as well as the historical rates used in 2"1% remeasurement must 9e retained! as shown 9elow. This approach shows remeasured net 2"1 income! using 2"1% rates! a9out %%H higher than reported in 2"1%. (in thousands)
Sales ;ost of sales =ross margin 8ther operating e#penses 5rofit 9efore ta#es
€ 2!%"" 1!'2" 1!"-" 2'" -" 2 * %2H
=16 $/€ 1.% 1.%-
1.%1.%
$ $'!%-" 1!*'., 1!2,.% '%".% 1!1-, ',*.0 $ -1,.2 %%H
=15 € $/€ 2!""" 1.% 1!2"" 1.%-"" 2"" 1.%,"" 1-" 1.% %2"
$ $2!*"" 1!00, 1!12% 2*, -22,1 $ ,0
?or these data! retaining 2"1% $@ e#change rates to translate and remeasure 2"1 euro data pro3ides percentage changes in dollar income close to that o9ser3ed in euros. Mowe3er! as pointed out in the chapter! applying this approach to remeasurement generally produces similar results only 9y coincidence.
Solutions Manual, Chapter 7
©Cambridge Business Publishers, 2013 23
P7.6
Tran!at"#n an Rat"# Ana!)"
(in thousands)
a. In+#%e State%ent (L)
Sales ;ost of sales 8perating e#penses et
$ ,"!""" (%1,!""") (1-2!""") $ 2!"""
Ba!an+e S;eet (L) ;ash $ 11!""" Cia9ilities Gerchandise in3entory 22"!""" ;apital stock (2""!""" # $1.") 5lant assets 20!""" Retained earnings :ccumulated other DDDDDD comprehensi3e income Total assets $",!""" StockholdersP 4quity L $ amounts of assets and lia9ilities amounts # 1.1 Ana!)" #' Tran!at"#n AG&t%ent '#r =15 € 4#posed position (net assets)! Eanuary 1! 2"1% 2""!""" 5lus net income in 2"1% (""!""" %,"!""") %"!"""
4#posed position (net assets)!ecem9er '1! 2"1%
2%"!"""
$/€ 1." 1.'"
1.1"
$2%2!""" '""!""" 2!""" (--!""") $",!"""
$ $'""!""" 2!""" '2!""" 2,%!""" $ --!"""
9. In+#%e State%ent
Sales ;ost of sales (1) ;ash operating e#penses (*"!""" # 1.') epreciation e#pense ("!""" # 1.) Remeasurement gain (see schedule 9elow) et income
$ ,"!""" (%%,!""") (110!""") (0!""") ,2!""" $ 0%!"""
(1) € 2"!""" (2""!""") '2"!"""
5urchases 4nding in3entory ;ost of sales
$/€ 1.'" 1.1
$ $ ,0,!""" (2'"!""") $ %%,!"""
Ba!an+e S;eet ©Cambridge Business Publishers, 2013 2"
Advaned Aounting, 2nd !dition
;ash $ 11!""" Gerchandise in3entory (2) 2'"!""" 5lant assets (') '0!""" Total assets $,1,!""" (2) 2""!""" # 1.1F (') 2"!""" # 1."
Cia9ilities ;apital stock Retained earnings StockholdersP equity
Ana!)" #' Re%ea&re%ent -a"n € 4#posed position! Eanuary 1! 2"1% (1""!""" / 2""!""") (1""!""") 5lus sales ""!""" Cess purchases (2"!""") Cess cash e#penses (*"!""")
4#posed position! ecem9er '1! 2"1% Remeasurement gain (income)
(21"!""")
$2%2!""" '""!""" 0%!""" $,1,!"""
$/€
1." 1.'" 1.'" 1.'" 1.1"
$
$(1"!""") ,"!""" (,0,!""") (110!""") (2*'!""") (2'1!""") $ (,2!""")
c. $
et income@sales et income@total assets! 12@'1@1%
€ ."-" (%"@"")
tran!at"#n ."-" (2@,")
re%ea&re%ent .11% (0%@,")
."-0 (%"@%,")
.1"' (2@",)
.12" (0%@,1,)
ote to The solution to this pro9lem uses net income. Using operating income (e#cluding the remeasurement gain)! the ratios using remeasured data are> 8perating income@sales 8perating income@total assets
(12@,") (12@,1,)
."1."1*
The ratios computed using translated data do a 9etter Jo9 of preser3ing the same relationships e#pressed in euros than do the remeasured ratios. Oith ratios like return on sales! gross margin percentage and the current ratio! the translated results will 9e the same as the euro results. This happens 9ecause in translation! the numerator and denominator of each ratio are multiplied 9y the same constant (e#change rate) which then cancels out. Return on assets using translated data will differ somewhat from the euro ratio depending on how much the e#change rate has changed during the year.
Solutions Manual, Chapter 7
©Cambridge Business Publishers, 2013 2#
Ratios 9ased on remeasured data equal their euro counterparts only 9y coincidence. +ecause some items are translated at historical rates and others at the current rate or the a3erage rate! the numerator and denominator do not reflect a constant which simply cancels out. d.
P7.
Tran!at"#n an Re%ea&re%ent #' :"nan+"a! State%ent
(in thousands) a.
;ash! recei3a9les
(1) (1"!""" '!""") # .%* ('"!""" 2!""") # ."
©Cambridge Business Publishers, 2013 2$
Ba!an+e S;eet a #' De+e%0er 41, =14 CH: $/CH: ;M? '"!""" . !""" .% 10!""" (1) ;M?2,"!""" ;M?12"!""" . '"!""" .%* 11"!""" see 9elow ;M?2,"!"""
$
$ 1,!"" 2*!0"" -,!"'" $ 1'2!2'" $ ,,!""" 1%!0"" 1!'" $ 1'2!2'"
$02!"'" 1%!""" $-,!"'"
Advaned Aounting, 2nd !dition
In+#%e State%ent an State%ent #' Reta"ne Earn"n epreciation (!""") (') 8ther (0"!""") .2 see Remeasurement loss DDDDDDD 9elow et income "!""" Retained earnings! 1@1 -"!""" .%* i3idends (2"!""") . Retained earnings! 12@'1 ;M? 11"!"""
(2) +eginning in3entory 5urchases 4nding in3entory ;ost of sales (') '!""" # .%* 2!""" # ."
,"!""" # .%* '0"!""" # .2 (!""") # .%
Solutions Manual, Chapter 7
(2!%0") (',!%"") (!0"") 2'!''" '*!2"" (11!""") $ 1!'"
$ 2*!%"" 1*2!%"" (2*!0"") $1*2!1""
$ 1!%0" 1!""" $ 2!%0"
C#%*&tat"#n #' Re%ea&re%ent L#
4nding e#posed position ('"!""" / 12"!""") Remeasurement loss (income)
$ $ 2,"!""" (1*2!1"")
;M? (*"!""")
$/CH:
$
.%* .2 .2 .2 . ."
$ (%*!""") 2,"!""" (1*2!%"") (',!%"") (11!""") (1!""") (%'!-"")
.
(%*!"") $ !0""
©Cambridge Business Publishers, 2013 27
9. Ba!an+e S;eet a #' De+e%0er 41, =14 CH: ;ash! recei3a9les ;M? '"!"""
$/CH: . . .
. .%* see 9elow see 9elow
$ $ 1,!"" '"!2" *,!2" $1%'!""" $ ,,!""" 1%!0"" %!2""
-!1"" $1%'!"""
In+#%e State%ent an State%ent #' Reta"ne Earn"n
4nding e#posed position ('"!""" & 11"!""") Translation gain (8;<)
©Cambridge Business Publishers, 2013 2%
;M?1%"!"""
.
$
$ '!*"" 2,!""" (11!""") ,-!*"" 00!""" $ (-!1"")
Advaned Aounting, 2nd !dition
P7.7
C#n(ert"n t;e Ca; :!#@ State%ent
(in millions)
a. Sear Canaa In+. State%ent #' Ca; :!#@ '#r t;e
$/C$ .*0 .*0 .*0 .*0 .*0
$ $ 1%." 1"1.- (*,."') ('',.*) (.-2) (1*1."*)
(,0) (,0)
.*0
(,%.**) (,%.**)
11 (-"0) (,*2) ;$ (*,)
.*0 .*0
111. (0-2.0*) (,01.2%) ,2.0, $(-,%.,)
213 S+;e&!e #' Tran!at"#n E''e+t #n Ca; C$ ;ash 9alance! Eanuary '"! 2"1" ;$ 1!'-2 ;ash used for operating acti3ities (1*0) ;ash used for in3esting acti3ities (,0) ;ash used for financing acti3ities (,*2)
;ash 9alance! Eanuary 2*! 2"11 4ffect of e#change rate changes on cash (gain)
Solutions Manual, Chapter 7
;$ %2,
(1)
$/C$ $ .*% $1!2**.".*0 (1*1."*) .*0 (,%.**) .*0 (,01.2%) '01.0, 1."2 %'%.2 $ (,2.0,)
©Cambridge Business Publishers, 2013 2&
9. Sear Canaa In+. Ana!)" #' C&%&!at"(e Tran!at"#n AG&t%ent '#r t;e 4#posed position! Eanuary '"! 2"1" 1!,.*% 5lus net income 1" .*0 Cess di3idends paid (-"0) .*0
4#posed position! Eanuary 2*! 2"11 2"1" translation gain +alance! Eanuary 2*! 2"11
;$1!""1
1."2
$ $ (,"."")
1!-.2 1%." (0-2.0*) *21.2' 1!"21."2 (**.0*) $(1*.0*)
c.
The choice of remeasurement 3ersus translation does not affect cash flow statement totals. ;urrent period cash flows are always con3erted at current period e#change rates! repetiti3e cash transactions at the weighted a3erage rate! large discrete cash transactions at the rates in effect when the transactions occurred. +ut in the operating section! if the indirect approach is used! remeasured depreciation and in3entory adJustments will likely differ from the translated adJustments.
P7.>
Ana!)" #' Tran!at"#n AG&t%ent D"+!#&re
a.
:ppearance of the currency translation adJustment as a component of other comprehensi3e income in stockholdersK equity indicates that the functional currency of :siamartPs Mong Qong su9sidiaries is the Mong Qong dollar. Thus the translation adJustments relating to these su9sidiaries are carried directly to :8;< in stockholdersK equity! 9ypassing the income statement.
9.
The following analysis assumes :siamartPs Mong Qong su9sidiaries had positi3e local currency net assets (assets lia9ilities) during this time period.
c.
The net currency translation adJustment 9alance at Eanuary 1! 2"", is positi3e (gain)! implying that the dollar on a3erage weakened against the Mong Qong dollar (e#change rates increased) for periods prior to 2"",. Mowe3er! the cumulati3e translation gain at Eanuary 1! 2"", is small in relation to the gains reported in 2"", and 2""0! indicating that in prior years the e#change rate either did not change as much or may ha3e decreased in prior years.
©Cambridge Business Publishers, 2013 30
Advaned Aounting, 2nd !dition
d.
4#penses remeasured at historical rates
I%*a+t #n ==> net "n+#%e increase increase
:siamartPs remeasured 2""- net income therefore is likely to 9e higher than its translated income. :siamartPs operating income! e#cluding the remeasurement gain! is also higher.
Solutions Manual, Chapter 7
©Cambridge Business Publishers, 2013 31
P7.?
Tran!ate/Re%ea&re Tr"a! Ba!an+e
a. and 9. A++#&nt ;ash and recei3a9les
(a) (9) (c)
8T4>
(d)
£ Ba!an+e A 2!,," 2!"" 1!-"" (,") (2!2"") (1!1"") (2!1"") (%!""") 2!""" 1," -%"
$/£ 2.2" (a) (9) 1.-" 2.2" 2.2" (c) 2.1" 2.12 1.-" 2.1" (d)
DDDDD
$ Re%ea&re%ent $ !-2 %!0 '!'1" (1!""-) (%!-%") (2!%2") ('!2") (-!%"") %!2%" 2-1!0,% 1* DDDDD
$/£ 2.2" 2.2" 2.2" 2.2" 2.2" 2.2" (c) 2.1" 2.1" 2.1" 2.1"
$ Tran!at"#n $ !-2 !"" '!*," (1!2'2) (%!-%") (2!%2") (%!2"") (-!%"") %!2"" '', 1!0,%
(e)
(2")
A " $ " $ $%!0 ($1.-" # 2!2"") & ($2." # '"") $'!'1" ($1.-" # 1!,"") & ($2.1 # 2"") The remeasured (translated) 9alance of equity at Eanuary 1! 2"1'! is gi3en as $'!2" ($%!2"").
"
Since no depreciation was taken on the plant assets purchased in 2"1'! 9oth accumulated depreciation and depreciation e#pense relate only to the plant assets purchased when the e#change rate was $1.-"@£. Ca!+&!at"#n #' Re%ea&re%ent L#
4#posed position! Eanuary 1! 2"1' 5lus sales Cess purchase of plant assets Cess purchase of C
©Cambridge Business Publishers, 2013 32
£ A (1!'"") %!""" (2"") ('"") (2!""") (-%")
$/£ 2."" 2.1" 2.1 2." 2.12 2.1"
A
2.2"
(,%")
$ $(2!,"") -!%"" (%'") (,1) (%!2%") (1!0,%) (1!2%*) (1!%"-) $ 1*
Advaned Aounting, 2nd !dition
(e)
Ca!+&!at"#n #' Tran!at"#n -a"n
4#posed position (net assets)! Eanuary 1! 2"1' 5lus net income in 2"1' (%!"""2!"""1,"-%") 4#posed position (net assets)! ecem9er '1! 2"1' Translation gain (8;<)
£ A2!1"" 1!"""
$/£ 2."" 2.1"
A'!1""
2.2"
$ $%!2"" 2!1"" $,!'"" ,!-2" $(2")
P7.1= Tran!at"n an Re%ea&r"n :"nan+"a! State%ent SA C#%*an) :"nan+"a! State%ent
Solutions Manual, Chapter 7
P 5 '""!""" (2""!""") ('"!""") (2"!""") 5 "!"""
$/P .12 .1" .12 .1"
$ $ ',!""" (2"!""") ('!,"") (2!""") 10!'"" $ 20!0""
203 Tran!at"#n $/P $ .1 $ %,!"" .1 '"!""" .1 %!""" .1 20!""" 10!"" .1" 1""!""" ,!"""
1!"" $10!"" $/P .12 .12 .12 .12
$ $ ',!""" (2%!""") ('!,"") (2!%"") DDDDD $ ,!"""
©Cambridge Business Publishers, 2013 33
C#%*&tat"#n #' Tran!at"#n an Re%ea&re%ent -a"n Re%ea&re%ent Tran!at"#n P $/P $ P $/P 4#posed position! Ean. 1! 2"1% 51!"""!"""a .1" $ 1""!""" 51!"""!"""a .1" 5lus> Sale of in3entory '""!""" .12 ',!""" '""!""" .12 Cess> 5urchase of in3entory (1@) (%""!""") .1" (%"!""") 5urchase of in3entory (,@'") (',"!""") .12 (%'!2"") 5urchase of office equipment (2""!""") .1" (2"!""") 5ayment of rent ('"!""") .12 ('!,"") ('"!""") .12 ;ost of goods sold (2""!""") .12 epreciation e#pense DDDDD DDDDD (2"!""") .12 2*!2"" 9 4#posed position! ec. '1! 2"1% 5 '1"!""" .1 %,!"" 51!""!"""c .1 Remeasurement@translation gain $(10!'"")
$ $1""!""" ',!"""
('!,"") (2%!""") (2!%"") 1",!""" 10!"" $(1!"")
otes a 1!"""!""" cash (1!"""!""") net assets carried at current money prices net assets. 9 '1"!""" cash ('1"!""") net assets carried at current money prices. c 1!""!""" cash ('1"!""") & in3entory (2""!""" & ',"!""") & office equipment! net (1-"!""") net assets 1!"""!""" & "!""" (net income).
P7.11 C#n#!"ate :"nan+"a! State%ent @"t; an Internat"#na! S&0""ar) Ste* 1 Tran!at"#n #' Stanar
De+e%0er 41, =15 tr"a! 0a!an+e £ $/£ ;ash and recei3a9les A '!"""!""" 2.'"
©Cambridge Business Publishers, 2013 3"
=
$ $ ,!*""!""" ,!*""!""" 11!""!""" (*!2""!""") (2!'""!""") (%!"""!""") (0!"""!""") 2!1""!""" (1!,0!""") (21!""!""") 12!*""!""" 1!"0!""" %!'""!""" $ "
Advaned Aounting, 2nd !dition
213 Ca!+&!at"#n #' Tran!at"#n AG&t%ent '#r =15 £ $/£ $ et assets! Eanuary 1! 2"1% A !""!""" 2."" $ 11!"""!""" et income 1!""!""" 2.1 '!22!""" i3idends (1!"""!""") 2.1" (2!1""!""") 12!12!""" et assets! ecem9er '1! 2"1% A ,!"""!""" 2.'" 1'!-""!""" Translation gain (8;<) $ (1!,0!""")
Ste* AG&t In(et%ent '#r =15 E&"t) "n Net In+#%e an Tran!at"#n -a"n
;alculation of Re3aluations 5rice paid +ook 3alue 4#cess of cost o3er 9ook 3alue
£ A-!"""!""" !""!""" 2!""!""" 1""!"""
$/ £ 2."" 2.""
2.""
U.S.$ $1,!"""!""" 11!"""!""" !"""!""" 2""!"""
""!""" A1!*""!"""
2.""
1!"""!""" $ '!-""!"""
£ A1!""!"""
$/ £ 2.1
U.S.$ $'!22!"""
(1""!""") (2!""") (2""!""") A1!10!"""
2.1 2.1 2.1
(21!""") ('!0") (%'"!""") $2!2,!2"
Ca!+&!at"#n #' E&"t) "n Net In+#%e '#r =15
StandardPs reported net income Re3aluation writeoffs> ;ost of goods sold e preciation e#pense 6""!"""@2"7 =oodwill impairment 4quity in net income
5hillipsP entry to update the in3estment for 2"1% equity in net income and its share of Standard s translation gain> =
%!2"1!2" 4quity in net income of Standard :ccumulated other comprehensi3e income
Solutions Manual, Chapter 7
2!2,!2" 1!,0!"""
©Cambridge Business Publishers, 2013 3#
Ste* 4C#n#!"at"#n @#rF"n *a*er entr"e
(;) 4quity in net income of Standard
2!2,!2"
i3idends
2!1""!""" %2,!2"
%!"""!""" 0!"""!""" 1!,0!"""
12!,0!"""
=
(R)
2'"!""" 1!1"!""" %!'0"!"""
21!""" '!0" %'"!""" %-!0"
©Cambridge Business Publishers, 2013 3$
2'"!""" 0!"" %,"!"""
$0!"" 2!""" # $2.'" $%,"!""" 2""!""" # $2.'" $%-!0"($2.'"$2.1)#(1""!""" & 2!""" &2""!""")
Advaned Aounting, 2nd !dition
The 2"1% consolidation working paper appears 9elow. De+e%0er 41, =15 C#n#!"at"#n #rF"n Pa*er
;ash and recei3a9les
=oodwill ;urrent lia9ilities Congterm de9t ;apital stock Retained earnings! 1@1 :ccumulated other comprehensi3e income i3idends Sales 4quity in net income ;ost of goods sold epreciation e#pense 8ther operating e#penses =oodwill impairment
Solutions Manual, Chapter 7
C#n#!"Jate Dr 2Cr3
P;"!!"* Dr 2Cr3 $2!1""!""" %!"""!"""
Stanar Dr 2Cr3 $,!*""!""" ,!*""!"""
12!"""!""" 1-!1"1!2"
11!""!""" (R)1!1"!"""
(-!"""!""") (%!"""!""") (1"!"""!""") (-!"""!""") (1!,0!""")
Dr
(R)2'"!"""
2'"!""" (8)
0!"" (8) %2,!2" (;) 12!,0!""" (4) !"""!""" (R) (R)%!'0"!""" %,"!"""(8)
(*!2""!""") (2!'""!""") (%!"""!""") (4)%!"""!""" (0!"""!""") (4)0!"""!""" (1!,0!""") (4)1!,0!""" (8) %-!0" 2!"""!""" 2!1""!""" ('"!"""!""") (21!""!""") (2!2,!2") (;)2!2,!2" 2"!"""!""" 12!*""!""" (8)21!""" 1!"""!""" 1!"0!""" (8)'!0" !"""!""" DDDDDDD $ "
Cr
0"!""" (R) 2!1""!"""(;)
%!'""!""" DDDDDDD (8)%'"!""" DDDDDDD $ " $21!,*-!0" $21!,*-!0 "
$ *!"""!""" 1"!*""!""" 2%!*2!""
'!*1"!""" (10!2""!""") (,!'""!""") (1"!"""!""") (-!"""!""") (2!'0,!2") 2!"""!""" (1!""!""") ''!11!""" 2!12-!0" *!'""!""" %'"!""" $ "
©Cambridge Business Publishers, 2013 37
P;"!!"* C#%*an) an S&0""ar) Stanar, Lt. C#n#!"ate State%ent #' In+#%e an Reta"ne Earn"n :#r t;e
Sales ;ost of goods sold e preciation e#pense 8ther operating e#penses =oodwill impairment Total e#penses et income Retained earnings! Eanuary 1 i3idends declared and paid Retained earnings! ecem9er '1
$1!""!""" $''!11!""" 2!12-!0" *!'""!""" %'"!""" $%%!*0'!0" $ ,!2,!2" -!"""!""" (2!"""!""") $12!2,!2"
P;"!!"* C#%*an) an S&0""ar) Stanar, Lt. C#n#!"ate Ba!an+e S;eet De+e%0er 41, =15 Aet ;ash and recei3a9les
©Cambridge Business Publishers, 2013 3%
$ *!"""!""" 1"!*""!""" 2%!*2!"" '!*1"!""" $%-!%"2!"" $10!2""!""" ,!'""!""" 1"!"""!""" 12!2,!2" 2!'0,!2" $%-!%"2!""
Advaned Aounting, 2nd !dition
P7.1 H)*er"n'!at"#nar) E+#n#%), U.S. -AAP an I:RS
a.
+ecause the local currency is highly inflationary! U.S. =::5 requires remeasurement of the su9sidiaryPs C; accounts into the reporting currency! U.S. dollars! e3en though the local currency is the su9sidiaryPs functional currency. Remeasurement of the ecem9er '1! 2"1% 9alance sheet is as follows>
A++#&nt
;ash 5lant assets! net Cia9ilities ;apital stock Sales re3enue 8ut of pocket operating e#penses epreciation e#pense Remeasurement loss (income)
Ba!an+e "n LC Dr 2Cr3 12!""" '!""" ("!""") ("!""") (2""!""") 1'!""" !""" "
$/LC ".1" "., ".1" "., ".1 ".1 "., See sch. 1
Ca!+&!at"#n #' Re%ea&re%ent L# LC +eginning e#posed position 1"!""" & Sales 2""!""" 8ut of pocket operating e#penses (1'!""")
$ Dr 2Cr3 12!"" 22!0" (!""") ('2!"") ('"!""") 2"!2" '!2" -!0" "
S+;e&!e 1
4nding e#posed position Remeasurement loss (income)
;ash 5lant assets! net Total
0!"""
Re%ea&re 0a!an+e ;eet De+e%0er 41, =15 $ 12!"" Cia9ilities 22!0" ;apital stock DDDDDD Retained earnings $ '!2" Total
$/LC "., ".1 ".1
$ ,!"" '"!""" (2"!2") 1,!2" 0!"" -!0"
".1"
$
!""" '2!"" (2!2") $ '!2"
Re%ea&re "n+#%e tate%ent :#r t;e )ear =15
Sales re3enue 8ut of pocket operating e#penses epreciation e#pense Remeasurement loss et loss
Solutions Manual, Chapter 7
$ '"!""" (2"!2") ('!2") (-!0") $ (2!2")
©Cambridge Business Publishers, 2013 3&
9.
Ca!+&!at"#n #' M#netar) L#
+eginning monetary position & Sales 8ut of pocket operating e#penses 4nding monetary position Gonetary loss (income)
LC 1"!""" 2""!""" (1'!""")
Pr"+eJ!e(e! aG&t%ent ,""@1"" ,""@%"" ,""@%""
0!"""
Ca!+&!at"#n #' Tran!at"#n L# Pr"+eJ!e(e! aG&te 2LC3 +eginning e#posed position '""!""" et loss ('""!""" / 2"2!"" / '"!""" / -2!"") (1!""")
Pr"+eJ!e(e! aG&te 2LC3 ,"!""" '""!""" (2"2!"") 10!"" 0!""" -2!""
S+;e&!e 4
4nding e#posed position Translation loss (8;<)
©Cambridge Business Publishers, 2013 "0
2-!"""
$/LC ".,
$ 1*!"""
".1
(2!2") 1*2!0" 2-!"" 1,%!2"
".1"
Advaned Aounting, 2nd !dition
