Question - Kingsfield starts a subsidiary operation in a foreign country on January 1, 2015. The country's currency is the kumquat (KQ). To start this business, Kingsfield invests 10,000 kumquats. Of this amount, i t spends 3,000 kumquats immediately to acquire equipment. Later, on April 1, 2015, it also purchases land. All subsidiary operational activities occur at an even rate throughout the year. The currency exchange rates for the kumquat for this year follow:
January 1, 2015$1.71
April 1, 2015 1.59
June 1, 2015 1.66
Weighted average-2015 1.64
December 31, 2015 1.62
As of December 31, 2015, the subsidiary reports the following trial balance:
DEBIT CREDIT
Cash KQ 8,000
Accounts receivable 9,000
Equipment 3,000
Accumulated depreciation KQ 600
Land 5,000
Accounts payable 3,000
Notes payable (due 2018) 5,000
Common stock 10,000
Dividends declared (6/1/15) 4,000
Sales 25,000
Salary expense 5,000
Depreciation expense 600
Miscellaneous expenses 9,000
Totals KQ43,600 KQ43,600
A corporation based in East Lansing, Michigan, Kingsfield uses the U.S. dollar as its reporting currency.
a. Assume that the subsidiary's functional currency is the kumquat. Prepare a trial balance for it in U.S. dollars so that consolidated financial statements can be prepared.
b. Assume that the subsidiary's functional currency is the U.S. dollar. Prepare a trial balance for it in U.S. dollars so that consolidated financial statements can be prepared.