1). On January 1, 2020, Perfect Corporation (a U.S. company) paid Euro 300,000 to acquire all of...
Question:
1). On January 1, 2020, Perfect Corporation (a U.S. company) paid Euro 300,000 to acquire all of the common stock of Snow Company, a German enterprise. There was no revaluation for this acquisition. During 2020, Snow purchased Euro 200,000 of inventories. Ending inventory items (FIFO cost) were purchased when the exchange was Euro 1 = US$1.22. Snow’s equipment was purchased in 2015. Merchandise purchases, sales and other expenses occurred evenly over the year. Snow declared and paid dividends of Euro 30,000 on December 17, 2020.
Exchange rates were as follows:
The exchange rate on January 1, 2020, was Euro 1 = US$1.20
The exchange rate on May 1, 2020, was Euro 1 = US$1.25
The exchange rate on December 17, 2020, was Euro 1 = US$1.18
The exchange rate on December 31, 2020, was Euro 1 = US$1.23
Average exchange rate for 2020 was Euro 1 = US$1.21
2). The functional currency of Snow was the US dollar.
Re-measurement/translation of financial statements to U.S. Dollars, for the year ended December 31, 2020
Snow Company (German subsidiary) | Euros | Exchange rate Euro 1 = | U.S. Dollars |
Income Statement | |||
Net sales | 400,000 | ||
Cost of goods sold | 220,000 | ||
Depreciation expense | 10,000 | ||
Other expenses | 50,000 | ||
Net income | 120,000 | ||
Statement of Retained Earnings | |||
Retained earnings, 1/1/20 | 20,000 | ||
+ Net income | 120,000 | ||
– Dividends declared | 30,000 | ||
Retained earnings, 12/31/20 | 110,000 |
Balance Sheet | 1/1/20 | 12/31/20 | ||
Cash | 220,000 | 330,000 | ||
Inventories (at FIFO cost) | 50,000 | 30,000 | ||
Equipment (net) | 80,000 | 70,000 | ||
Total | 350,000 | 430,000 | ||
Accounts payable | 30,000 | 20,000 | ||
Common stock | 300,000 | 300,000 | ||
Retained earnings | 20,000 | 110,000 | ||
Total | 350,000 | 430,000 |
(a) Determine the re-measurement gain or loss/translation adjustment for 2020 by analyzing changes in exposed positions. You must show your calculations to receive credit.
(b) Complete the above table for the re-measurement/translation of Snow’s financial statement into U.S. dollars.
Expert Answer:
Income Statement Euros Exchange Rate USD Net sales 400000 121 484000 Cost of goods sold 220000 121 2... View the full answer
