Question

A Clarke Corporation subsidiary buys marketable equity securities and inventory on April 1, 2017, for 100,000 won each. It pays for both items on June 1, 2017, and they are still on hand at year-end. Inventory is carried at cost under the lower-of-cost-or-net realizable rule. Currency exchange rates for 1 won follow:

January 1, 2017	$	0.45	=	1	won
April 1, 2017		0.46	=	1
June 1, 2017		0.47	=	1
December 31, 2017		0.49	=	1

A. Assume that the won is the subsidiary’s functional currency. What balances does a consolidated balance sheet report as of December 31, 2017?

B. Assume that the U.S. dollar is the subsidiary’s functional currency. What balances does a consolidated balance sheet report as of December 31, 2017?

Answer 1

Answer of Part A)

Both inventory and marketable securities has been translated using current exchange rates

Marketabale Equity Securities = 0.49*100,000     = $49,000

Inventory      = 0.49*100,000        $49,000

Answer of Part B)

Since Home currency is the functional curreny , Marketable securities has been translated using currency exhange rate and inventory is measured at historical exchange rate on April   2017

Marketabale Equity Securities = 0.49*100,000     = $49,000

Inventory      = 0.46*100,000   =      $46,000

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