Question

A U.S. company acquired a Turkish subsidiary at the beginning of the current year. The subsidiary's trial balances for January 1 and December 31 are presented below, in Turkish lira.

	January 1 Dr (Cr)	December 31 Dr (Cr)
Cash, receivables	₺   40,000	₺ 20,000
Plant & equipment, net	400,000	435,000
Liabilities	(175,000)	(170,000)
Capital stock	(115,000)	(115,000)
Retained earnings, January 1	(150,000)	(150,000)
Dividends		15,000
Sales revenue		(800,000)
Operating expenses	________	765,000
Total	₺ 0	₺ 0

New plant & equipment of ₺100,000 was acquired during the year. Operating expenses include ₺65,000 of depreciation on plant & equipment, of which ₺10,000 is related to plant & equipment purchased during the year. Exchange rates (U.S.$/₺) are as follows:

January 1	$0.24
Average for year	0.25
Plant & equipment acquired	0.26
Dividends declared	0.27
December 31	0.30

Assume that the subsidiary's functional currency is the U.S. dollar. What is the subsidiary's remeasured retained earnings balance at year-end?

	A.	$41,150
	B.	$44,750
	C.	$45,200
	D.	$40,700

Answer 1

Retained earning at the end is calculated by taking beginning and then added the net income earned during the year and dividend declared will be deducted from the balance to get the ending retained earning. This ending retain earning is shown on the balance sheet liability side under the category of stockholder's equity'.