Boerkian Co. started 2018 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2015. On May 1, 2018, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2018, the company incurred an operating expense of §22,000 that was immediately paid. No other transactions occurred during the year so an average exchange rate is not necessary. Currency exchange rates were as follows: April 4, 2015§1=$0.28January 1, 2018§1=$0.29May 1, 2018§1=$0.30October 1, 2018§1=$0.31December 31, 2018§1=$0.35?Assume that Boerkian was a foreign subsidiary of a U.S. multinational company and the stickle (§) was the functional currency of the subsidiary. Calculate the translation adjustment for this
subsidiary for 2018 and state whether this is a positive or a negative adjustment.
What will be an ideal response?
The translation adjustment is based on changes in the net assets of the subsidiary.
| Net assets, 1/1/18 | § | 98,000 | × | $0.29 | = | $ | 28,420 | ||
| Change in net assets, 2018: | |||||||||
| Rendered services | 36,000 | × | $0.30 | = | 10,800 | ||||
| Incurred expense | (22,000 | ) | × | $0.31 | = | (6,820 | ) | ||
| Net assets, 12/31/18 | § | 112,000 | $ | 32,400 | |||||
| Net assets, 12/31/18 at current exchange rate | § | 112,000 | × | $0.35 | = | 39,200 | |||
| Translation adjustment, 2018 (positive) | $ | (6,800 | ) | ||||||
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Answer the following statement true (T) or false (F)
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What will be an ideal response?
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