Question

Boerkian Co. started 2018 with two assets: Cash of §26,000 (Stickles) and Land that originally cost...

Boerkian Co. started 2018 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2015. On May 1, 2018, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2018, the company incurred an operating expense of §22,000 that was immediately paid. No other transactions occurred during the year so an average exchange rate is not necessary. Currency exchange rates were as follows:

April 4, 2015 § 1 = $ 0.28
January 1, 2018 § 1 = $ 0.29
May 1, 2018 § 1 = $ 0.30
October 1, 2018 § 1 = $ 0.31
December 31, 2018 § 1 = $ 0.35

Assume that Boerkian was a foreign subsidiary of a U.S. multinational company and the local currency of the subsidiary (stickle) is the functional currency. On the December 31, 2018 balance sheet, what was the translated value of the Land account?

Homework Answers

Answer #1

Assumed that the Boerkian Co. was started in January 01,2018. It started with the 2 assets: Land and cash. So that the entry in the books were made on the same day. For the purpose of Foreign currency translation of assets, the date of exchange rate should be the date of entry in the books. So the exchange rate prevailing on the date of entry in the books has to be considered.

Date of entry in books - January 01, 2018

Exchange rate: §1 = $0.29

Original cost = § 72000

When converted to $,

= 72000 X 0.29

= $ 20880.

Translated value of land account = $ 20880

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