Problem: Express Travel owns a travel agency that operates in London. The account balances in pounds for the subsidiary are below:
The subsidiary did not make any purchases of office supplies or plant assets during the year. Revenues were earned and operating expenses, other than depreciation and supplies used, were incurred evenly throughout the year.
a. prepare a schedule to compute the translations adjustment for the year, assuming foreign entity's functional currency is the pound.
b. prepare a schedule compute the translation gain or loss, assuming the foreign entity's functional currency is the US dollar.
c. explain why the results differ under the two methods.
| 2008 |
|
01-Jan |
31-Dec |
| cash and receivables |
32000 |
35000 |
| office supplies |
1500 |
900 |
| land, building and equipment |
70000 |
65000 |
| accounts payable |
-15500 |
-6900 |
| long term note payable |
-25000 |
-15000 |
| common stock |
-40000 |
-40000 |
| retained earnings |
-23000 |
-23000 |
| dividends- declared and paid on dec 31 |
0 |
4000 |
| revenues |
0 |
-40000 |
| operation expenses |
0 |
20000 |
| totals |
0 |
0 |
|
|
|
| Exchange rates for 2008 were as follows: |
|
| 1-1 |
$1.5403 |
|
| 12-31 |
$1.5961 |
|
| average for the year |
$1.5532 |
|