Question

Inkal Co. was formed on January 1, 2017 as a wholly owned subsidiary of a US corporation. Sinkal's functional currency was the stickle (§). The following transactions and events occurred during 2017: Jan 1 Sinkal issued common stock for §1,000,000 June 30 Sinkal paid dividends of §20,000 Dec. 31 Sinkal reported net income of §80,000 for the year Exchange rates for 2017 were: Jan 1 §1 = $.48 June 30 §1 = $.46 Dec. 31 §1 = $.42 Average §1 = $.44
What was the amount of the translation adjustment for 2017?

Answer 1

Answer:

It would decrease the net assets by $60,800

Explanation:

The computation of the translation adjustment for 2017 is shown below:

For common stock

= Issued amount × (revised exchange rate - exchange rate)

= $1,000,000 × (0.42 - 0.48)

= -$60,000

For dividend

= Dividend paid × (revised exchange rate - exchange rate)

= $20,000 × (0.42 - 0.46)

= -$800

For net income

= Net income × (revised exchange rate - exchange rate)

= $80,000 × (0.42 - 0.42)

= $0

So, it would decrease the net assets by $60,800 ($60,000 + $800)