Question

Peck corporation, a foreign subsidiary was acquired by a U.S. corporation on January 1, 2020. Determine the exchange rate used to restate the following accounts at December 31, 2020. Land was purchased on October 1, 2020. Equipment was purchased on February 1, 2020. Inventory was purchased on October 1, 2020 (reported at cost) Relevant exchange dates follow: (A) January 1, 2020 (B) October 1, 2020 (C) December 31, 2020 (D) Average, 2020 (E) February 1, 2020 Identify the exchange rate used to translate inventory when the functional currency is the foreign currency.

Answer 1

Answer:

Land, Equipment, and Inventory will be restated on the closing date i.e. December 31, 2020. The rate of the currency exchange from local to foreign currency for equipment is on the day of purchase which is February 1, 2020.

Explanation:

1-Balance sheet items are restated on the closing date.

2-P & L items are restated on the transaction date.

As the items Land, Equipment and Inventory are all the balance sheet items, thus they will be stated on the closing date i.e. December 31, 2020.

Furthermore, the functional currency is foreign currency. Since the equipment is purchased in the domestic currency it has to be translated into the foreign currency at the rate as on the date of purchase i.e; February 1, 2020.