Wellington Corporation is a New Zealand company. Wellington is a wholly-owned su

Question

Wellington Corporation is a New Zealand company. Wellington is a wholly-owned subsidiary of Amherst, Incorporated, an American firm. Wellington Corporation keeps its books using the New Zealand dollar (NZD). Amherst, Incorporated keeps its books using the United States dollar (USD). Wellington Corporation's financial statements require translation from NZD to USD so that consolidated financial statements for 2017 can be prepared. Financial statements (before translation) for Wellington Corporation for 2017 are presented on the next page of this exam. That page also contains some exchange rates that you may or may not need in completing the problem. The exchange rates are stated in terms of number of USD for one NZD (that is, they are direct quotes). Required: Starting with Wellington's financial statements on the next page, prepare translated financial statements for Wellington Corporation from NZD to USD. Use the temporal method to perform the translation. Show work and the translated financial statements on the next page of this exam. In completing this problem, please note the following: Assume that Wellington Corporation uses the FIFO cost flow assumption for valuing inventory, and that all inventory was acquired when one New Zealand dollar costs three U.S. dollars (USD 300 per NZD). Assume further that there is no change between beginning and ending inventory for the year ended December 31, 2017 . .Assume that the translated balance of Wellington Corporation's retained earnings at December 31, 2016 was USD 2,500.

Explanation / Answer

Wellington corporation

Subsidiary of Amherst incorporated

Financial statement after translation

Balance sheet 31st Dec 2017(USD)

Cash. 15000

Accounts receivable. 7500

Inventory. 6000  

Equipment. 12000

Land. 5000

Total. 45500

Accounts payable. 10000

Bonds payable. 15000

Common stock 11000

Retained earnings. 13000(10500+2500)

Total

Exchange Difference of 3500 will be shown in liability side as foreign exchange reserves.

Income. Statement(USD)

Revenue. 27000

Cost of goods sold. 9000

Depreciation. 3000

Other expenses. 4500

Net income 10500

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