Lancer, Inc., starts a subsidiary in a foreign country on January 1, 2012. The f

Question

Lancer, Inc., starts a subsidiary in a foreign country on January 1, 2012. The following account balances for the year ending December 31, 2013, are stated in kanquo (KQ), the local currency:

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?

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?

   

  Sales KQ 260,000   Inventory (bought on 3/1/13) 156,000   Equipment (bought on 1/1/12) 72,000   Rent expense 16,000   Dividends (paid on 10/1/13) 26,000   Notes receivable (to be collected in 2016) 42,000   Accumulated depreciation—equipment 21,600   Salary payable 6,200   Depreciation expense 7,200

Explanation / Answer

a. 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? Since 1 US $ = KQ currency as given, hence for converting the KQ currency ,we need to divide 1 by the equivalent value. Account      Exchange Rate Base in KQ Rate on   Sales                              0.0313         32.0000 Average for 2013   Inventory                              0.0323         31.0000 March 1, 2013 rate   Equipment                              0.0400         25.0000 January 1, 2012 rate   Rent expense                              0.0313         32.0000 Average for 2013   Dividends                              0.0303         33.0000 October 1, 2013 Rate   Notes receivable                              0.0294         34.0000 December 31, 2013 Rate   Accumulated depreciation–equipment                              0.0294         34.0000 December 31, 2013 Rate   Salary payable                              0.0294         34.0000 December 31, 2013 Rate   Depreciation expense                              0.0313         32.0000 Average for 2013 b. 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? Account      Exchange Rate in KQ   Sales                            32.0000   Inventory                            31.0000   Equipment                            25.0000   Rent expense                            32.0000   Dividends                            33.0000   Notes receivable                            34.0000   Accumulated depreciation–equipment                            34.0000   Salary payable                            34.0000   Depreciation expense                            32.0000

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