Q#6 Rolfe Company (a U.S.-based company) has a subsidiary in Nigeria where the l
ID: 2517486 • Letter: Q
Question
Q#6
Rolfe Company (a U.S.-based company) has a subsidiary in Nigeria where the local currency unit is the naira (NGN). On December 31, 2016, the subsidiary had the following balance sheet (amounts are in thousands (000's)):
The subsidiary acquired the inventory on August 1, 2016, and the land and building in 2010. It issued the common stock in 2008. During 2017, the following transactions took place:
The U.S dollar ($) exchange rates for 1 NGN are as follows:
Assuming the NGN is the subsidiary's functional currency, what is the translation adjustment determined solely for 2017?
Assuming the U.S.$ is the subsidiary's functional currency, what is the remeasurement gain or loss determined solely for 2017?
(Input all amounts as positive. Enter amounts in whole dollars.)
Please show your calculations
Cash NGN 15,560 Notes payable NGN 20,080 Inventory 10,400 Common stock 20,080 Land 4,040 Retained earnings 10,040 Building 40,400 Accumulated depreciation (20,200 ) NGN 50,200 NGN 50,200Explanation / Answer
a.Compute translation adjustment Amount in 000 Local Currency NGN Exchange Rate US $ Amount in $ Net asset balance 1/1(total assets - notes payable) 30,120 0.0068 $204.82 Increases in net assets (income) Sold inventory at a profit 5/1 (NGN 16,400 - 10,400) 6,000 0.0072 $43.2 Sold land at a gain 6/1 (NGN (6040 -$4040) 2,000 0.0074 $14.8 Decreases in net assets Paid a dividend 12/1 -3040 0.0086 -$26.14 Depreciation recorded -2020 0.0082 -$16.56 Net asset balance 12/31 $33,060 $220.11 Net asset balance 12/31 at current exchange rate $33,060 0.0092 -$304.15 Translation adjustment - positive -$84.04 Translation adjustment has impact on net assets due Changes in functional currency. -$84.04 Translation adjustment —positive -$84.04 b. Compute remeasurement gain/loss Local Currency KM Exchange Rate US $ Amount in $ Beginning net monetary liability position (purchase of land on account) (3040 - 2000) -1040 0.0068 -$7.07 Increases in monetary assets: Sold inventory 5/1 16400 0.0072 $118.08 Sold land 6/1 6040 0.0074 $44.7 Decreases in monetary assets: Bought inventory 10/1 -20040 0.0082 -$164.33 Bought land 11/1 -3040 0.0084 -$25.54 Paid a dividend 12/1 -3040 0.0086 -$26.14 Ending net monetary liability position -4720 $60.3 Ending net monetary liability position at current exchange rate -4720 0.0092 $43.42 Remeasurement Loss $16.88 Remeasurement Gain/loss has impact on net monetary assets and liabilities due Changes in functional currency. $16.88 Payment on the note payable and collection of accounts receivable do not affect the net monetary liability position The purchase of land on account did not result in a decrease in monetary assets, rather an increase in monetary liabilities.
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