22. A subsidiary of Reynolds Inc., a U.S. company, was located in a foreign country. The local currency of this subsidiary was the Euro (€) while the functional currency of this subsidiary was the U.S. dollar. The subsidiary acquired Equipment A on January 1, 2018, for €250,000. Depreciation expense associated with Equipment A was €25,000 per year. On January 1, 2020, the subsidiary acquired Equipment B for €150,000 and Equipment B had associated depreciation expense of €10,000. The subsidiary owned no other depreciable assets. Currency exchange rates between the U.S. dollar and the Euro were as follows:
| January 1, 2018 | € | 1 | = | $ | 1.20 |
| December 31, 2018 | € | 1 | = | $ | 1.14 |
| 2018 Average | € | 1 | = | $ | 1.18 |
| January 1, 2019 | € | 1 | = | $ | 1.15 |
| December 31, 2019 | € | 1 | = | $ | 1.21 |
| 2019 Average | € | 1 | = | $ | 1.18 |
| January 1, 2020 | € | 1 | = | $ | 1.26 |
| December 31, 2020 | € | 1 | = | $ | 1.30 |
| 2020 Average | € | 1 | = | $ | 1.28 |
What amount would have been reported for depreciation expense related to the equipment owned by the subsidiary in Reynolds’s consolidated balance sheet at December 31, 2018?
Multiple Choice
$29,500.
$28,500.
$30,000.
$12,000.
$11,800.
Answer : $29500
Description :
In books of Reynolds report depriciation for 2018, So eqipment acquired in 2018 is A and thats depriciation cost is 25000(Euro) for the year 2018.
As per rules, you should report expense of foreign sunsidiary in books of account of parent company with consolidated statement is Actual / Average foreign exchange rate. And depriciation expense is not for single day expense.
Therefor, In Reynolds consolidated balance sheet dated- 31 Dec 2018, report depriciation with Average rate of 2018
That mean Depriciation in Dollars = 25000(Euro) * 1.18 = $29500
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