Question

Panco, a U.S. entity, has a subsidiary, Sanco, located in a foreign country. Sanco's operations are concentrated in the country in which it is located and are essentially independent of Panco. The economy of the foreign country is not highly inflationary. Sanco prepared the following shortened financial statements in its local currency, the FCU, for the fiscal year ended December 31, 2018:Statement of Net Income and FCUsComprehensive Income (20X8) (in 000)Sales 12,000COGS (4,000)Depreciation Expense (1,000)Other Expenses (3,000)Net Income 4,000Other Comprehensive Income 0Comprehensive Income 4,000Retained Earnings (20X8)Beginning R/E (end 20X7) 6,000Add: Net Income (20X8) 4,000Deduct: Dividends (20X8) (1,000)Ending Retained Earnings 9,000Balance Sheet (12/31/20X8)Cash and Account Receivable 2,000Inventory 6,000Fixed Assets 10,000Total Assets 18,000Liabilities 2,000Common Stock 7,000Retained Earnings 9,000Subtotal 18,000AOCI 0Total Liabilities + Equity 18,000The following exchange rates were available:Historic exchange rate when Sanco was established by Panco: 1 FCU = $1.200Weighted average exchange rate for 20X8:1 FCU = $1.300Spot exchange rate at date dividend declared:1 FCU = $1.290Spot exchange rate at December 31, 20X8:1 FCU = $1.310Which one of the following is the amount (in 000) of Sanco's dividends declared and paid in 20X8 in U.S. dollars?a) $1,000b) $1,290c) $1,300d) $1,310

Answer 1

$15,600 is the amount (in 000) of Sanco's sales in U.S. dollars

Explanation and Solution :

Because translations can be used to translate the financial results of Sanco presented in FCUs to U.S. dollars, transactions will be translated using the rate of exchange in effect at the time of each transaction or the weighted average exchange rate for the year.

In this scenario, the weighted average exchange rate for the duration shall be given as

1 FCU = $1,300.

The right dollar sum of revenue to Sanco will then be

12,000 FCUs x $1,300 = $15,600.