Board Company has a foreign subsidiary that began operations at the start of 2017 with assets of 132,000 kites (the local currency unit) and liabilities of 54,000 kites. During this initial year of operation, the subsidiary reported a profit of 26,000 kites. It distributed two dividends, each for 5,000 kites with one dividend declared on March 1 and the other on October 1. Applicable exchange rates for 1 kite follow: January 1, 2017 (start of business). . . . . . . . . . $0.80March 1, 2017. . . . . . . . . . . . 0.78Weighted average rate for 2017. . 0.77October 1, 2017. . . . . . . . . . . . . 0.76December 31, 2017. . . . . . . . .. . 0.75 a. Assume that the kite is this subsidiary’s functional currency. What translation adjustment would Board report for the year 2017?b. Assume that on October 1, 2017, Board entered into a forward exchange contract to hedge the net investment in this subsidiary. On that date, Board agreed to sell 200,000 kites in three months at a forward exchange rate of $0.76/1 kite. Prepare the journal entries required by this forward contract.c. Compute the net translation adjustment for Board to report in accumulated other comprehensive income for the year 2017 under this second set of circumstances.
Board Company has a foreign subsidiary that began operations at the start of 2017 with assets of 132,000 kites (the local currency unit) and liabilities of 54,000 kites. During this initial year of operation, the subsidiary reported a profit of 26,000 kites. It distributed two dividends, each
for 5,000 kites with one dividend declared on March 1 and the other on October 1. Applicable exchange rates for 1 kite follow:
January 1, 2017 (start of business). . . . . . . . . . $0.80
March 1, 2017. . . . . . . . . . . . 0.78
Weighted average rate for 2017. . 0.77
October 1, 2017. . . . . . . . . . . . . 0.76
December 31, 2017. . . . . . . . .. . 0.75
a. Assume that the kite is this subsidiary’s functional currency. What translation adjustment would Board report for the year 2017?
b. Assume that on October 1, 2017, Board entered into a forward exchange contract to hedge the net investment in this subsidiary. On that date, Board agreed to sell 200,000 kites in three
months at a forward exchange rate of $0.76/1 kite. Prepare the
c. Compute the net translation adjustment for Board to report in accumulated other comprehensive
income for the year 2017 under this second set of circumstances.
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