Board Company has a foreign subsidiary that began operations at the start of 2011 with assets of

Question:

Board Company has a foreign subsidiary that began operations at the start of 2011 with assets of 132,000 kites (the local currency unit) and liabilities of 54,000 kites. During this initial year of operation, the subsidiary reported a profit of 26,000 kites. It distributed two dividends, each for 5,000 kites with one dividend paid on March 1 and the other on October 1. Applicable exchange rates for 1 kite follow:

January 1, 2011 (start of business) . . . . . . . . . . . . . . . $0.80

March 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.78

Weighted average rate for 2011 . . . . . . . . . . . . . . . . . .0.77

October 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.76

December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.75

a. Assume that the kite is this subsidiary’s functional currency. What translation adjustment would Board report for the year 2011?

b. Assume that on October 1, 2011, Board entered into a forward exchange contract to hedge the net investment in this subsidiary. On that date, Board agreed to sell 200,000 kites in three months at a forward exchange rate of $0.76/1 kite. Prepare the journal entries required by this forward contract.

c. Compute the net translation adjustment for Board to report in Accumulated Other Comprehensive Income for the year 2011 under this second set of circumstances.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...