Question: Lancer, Inc. (a U.S.-based company), establishes a subsidiary in a foreign country on January 1, 2016. The following account balances for the year ending December

Lancer, Inc. (a U.S.-based company), establishes a subsidiary in a foreign country on January 1, 2016. The following account balances for the year ending December 31, 2017, are stated in kanquo (KQ), the local currency:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . KQ 200,000

Inventory (bought on 3/1/17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Equipment (bought on 1/1/16) . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000

Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Dividends (declared on 10/1/17) . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Notes receivable (to be collected in 2020) . . . . . . . . . . . . . . . . . 30,000

Accumulated depreciation-equipment . . . . . . . . . . . . . . . . . . . 24,000

Salary payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000

Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

The following U.S.$ per KQ exchange rates are applicable:

January 1, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . $0.13

Average for 2016 . . . . . . . . . . . . . . . . . . . . . . . . 0.14

January 1, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . 0.18

March 1, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . 0.19

October 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . 0.21

December 31, 2017. . . . . . . . . . . . . . . . . . . . . . 0.22

Average for 2017 . . . . . . . . . . . . . . . . . . . . . . . 0.20

Lancer is preparing account balances to produce consolidated financial statements.

a. Assuming that the kanquo is the functional currency, what exchange rate would be used to report each of these accounts in U.S. dollar consolidated financial statements?

b. Assuming that the U.S. dollar is the functional currency, what exchange rate would be used to report each of these accounts in U.S. dollar consolidated financial statements?

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