Q#9 On December 18, 2017, Stephanie Corporation acquired 100 percent of a Swiss
ID: 2517488 • Letter: Q
Question
Q#9
On December 18, 2017, Stephanie Corporation acquired 100 percent of a Swiss company for 4.0 million Swiss francs (CHF), which is indicative of book and fair value. At the acquisition date, the exchange rate was $1.00 = CHF 1. On December 18, 2017, the book and fair values of the subsidiary’s assets and liabilities were:
Stephanie prepares consolidated financial statements on December 31, 2017. By that date, the Swiss franc has appreciated to $1.10 = CHF 1. Because of the year-end holidays, no transactions took place prior to consolidation.
Determine the translation adjustment to be reported on Stephanie’s December 31, 2017, consolidated balance sheet, assuming that the Swiss franc is the Swiss subsidiary’s functional currency. What is the economic relevance of this translation adjustment?
Determine the remeasurement gain or loss to be reported in Stephanie’s 2017 consolidated net income, assuming that the U.S. dollar is the functional currency. What is the economic relevance of this remeasurement gain or loss?
Please show your calculations, thanks.
Cash CHF 817,000 Inventory 1,317,000 Property, plant & equipment 4,017,000 Notes payable (2,134,000 )Explanation / Answer
(a). Translation adjustment to be reported on Stephanie’s December 31, 2017, consolidated balance sheet;
Items
CHF
Translation rate
US ($)
Assets;
Cash
817000
1.10
898700
Inventory
1317000
1.10
1448700
Fixed assets
4017000
1.10
4418700
Total assets
6151000
6766100
Liabilities;
Notes payable
2134000
1.10
2347400
Owner’s equity (6151000 – 2134000)
4017000
1.00
4017000
Translation adjustment (4017000 * 0.10)
401700
Total liabilities
6151000
6766100
(b). Remeasurement gain or loss to be reported on Stephanie’s December 31, 2017, consolidated balance sheet;
Items
CHF
Translation rate
US ($)
Assets;
Cash
817000
1.10
898700
Inventory
1317000
1.00
1317000
Fixed assets
4017000
1.00
4017000
Total assets
6151000
6232700
Liabilities;
Notes payable
2134000
1.10
2347400
Owner’s equity (6151000 – 2134000)
4017000
1.00
4017000
Remeasurement loss (6232700 – 2347400 – 4017000)
(131700)
Total liabilities
6151000
6232700
Items
CHF
Translation rate
US ($)
Assets;
Cash
817000
1.10
898700
Inventory
1317000
1.10
1448700
Fixed assets
4017000
1.10
4418700
Total assets
6151000
6766100
Liabilities;
Notes payable
2134000
1.10
2347400
Owner’s equity (6151000 – 2134000)
4017000
1.00
4017000
Translation adjustment (4017000 * 0.10)
401700
Total liabilities
6151000
6766100
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