On January 1, 2024, Joey Co. acquired a subsidiary in Italy named Legoria Co. Legoria' s functional
Question:
On January 1, 2024, Joey Co. acquired a subsidiary in Italy named Legoria Co. Legoria' s functional currency is the EURO which is also its the local currency (LCU) (i.e., the currency in which Legoria Co. maintains its records in). Selected exchange rates are as follows:
January 1, 2024, 1 FCU = $1.00
December 31, 2024, 1 FCU = $1.08
2024 average 1 FCU = $1.05
The following Trial balance for Legoria is available for 12/31/24.
Account | Balance in Euros |
Cash | 10,000 FCU |
Accounts Receivable | 21,000 |
Allowance for doubtful accts. | (1,000) |
Due From Joey | 14,000 |
Inventory | 30,000 |
Prepaid Insurance | 3,000 |
Land | 18,000 |
Depreciable Assets | 120,000 |
Accumulated Depreciation | (15,000) |
Cost of Goods Sold | 180,000 |
Depreciation Expense | 10,000 |
Income Tax Expense | 30,000 |
Other Expenses | 23,000 |
Total | 443,000 FCU |
Accounts Payable | 20,000 FCU |
Taxes Payable | 30,000 |
Accrued Interest Payable | 1,000 |
Bonds Payable | 10,000 |
Common Stock | 80,000 |
Retained Earnings 1/1/24 | 20,000 |
Sales | 282,000 |
Total | 443,000 FCU |
1). Required: Prepare a schedule translating the 12/31/24 trial balance into the reporting currency of Joey Co. to facilitate the consolidation process.
2). Assuming Parent Uses Equity Method, what is the Journal entry the Parent would make on its books to account for the Translation Adjustment?
3). Would Joey Co. need to Record a Consolidation Entry to Consolidate Legoria Co. on 12/31/24 related to the Translation Adjustment.
A). Yes or No.
B). If answer in part A is yes, describe the entry needed. If the answer is No, describe why the entry is not needed.
4) Assume Joey Co's Subsidiary is in a Highly Inflationary economy.
- What method would Joey Co use to translate its subsidiary's trial balance?
- Where would the gain or loss be reported?