Question

Lancer, Inc. (a U.S.-based company), establishes a subsidiary in a foreign country on January 1, 2016. The following account balances for the year ending December 31, 2017, are stated in kanquo (KQ), the local currency:

Sales	KQ	150,000
Inventory (bought on 3/1/17)		75,000
Equipment (bought on 1/1/16)		50,000
Rent expense		10,000
Dividends (declared on 10/1/17)		20,000
Notes receivable (to be collected in 2020)		31,000
Accumulated depreciation—equipment		15,000
Salary payable		4,000
Depreciation expense		5,000

The following U.S.$ per KQ exchange rates are applicable:

January 1, 2016	$0.14
Average for 2016	0.15
January 1, 2017	0.19
March 1, 2017	0.20
October 1, 2017	0.22
December 31, 2017	0.23
Average for 2017	0.21

Lancer is preparing account balances to produce consolidated financial statements.

1. Assuming that the kanquo is the functional currency, what exchange rate would be used to report each of these accounts in U.S. dollar consolidated financial statements?

2. Assuming that the U.S. dollar is the functional currency, what exchange rate would be used to report each of these accounts in U.S. dollar consolidated financial statements?

(Round your answers to 2 decimal places.)

Answer 1

As dividend is a liability, it has to be recorded at exchange rate at the end of the period that is at the current rate because current rate is followed.So the answer becomes 0.23. When US dollars is kept as the functional currency , we are using temporal method.Since,inventory is an asset carried a monetary asset ,historical  exchange rate is taken which is 0.20. Dividend is taken at the declaration date which is Jan 2017 we take 0.19 exchange rate .