On December 18, 2020, 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, 2020, the book and fair values of the subsidiary's assets and liabilities were as follows: Cash Inventory Property, plant, and equipment Notes payable CHF 800,000 1,300,000 4,000,000 (2,100,000) Stephanie prepares consolidated financial statements on December 31, 2020. 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. a. Determine the translation adjustment to be reported on Stephanie's December 31, 2020, consolidated balance sheet, assuming that the Swiss franc is the Swiss subsidiary's functional currency. What is the economic relevance of this translation adjustment? b. Determine the remeasurement gain or loss to be reported in Stephanie's 2020 consolidated net income, assuming that the U.S. dollar is the functional currency. What is the economic relevance of this remeasurement gain or loss?

On December 18, 2020, 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, 2020, the book and fair values of the subsidiary's assets and liabilities were as follows: Cash Inventory Property, plant, and equipment Notes payable CHF 800,000 1,300,000 4,000,000 (2,100,000) Stephanie prepares consolidated financial statements on December 31, 2020. 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. a. Determine the translation adjustment to be reported on Stephanie's December 31, 2020, consolidated balance sheet, assuming that the Swiss franc is the Swiss subsidiary's functional currency. What is the economic relevance of this translation adjustment? b. Determine the remeasurement gain or loss to be reported in Stephanie's 2020 consolidated net income, assuming that the U.S. dollar is the functional currency. What is the economic relevance of this remeasurement gain or loss?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Problem 10-24 (Static) (LO 10-1, 10-3, 10-4)
On December 18, 2020, 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, 2020, the book and
fair values of the subsidiary's assets and liabilities were as follows:
Cash
Inventory
Property, plant, and equipment
Notes payable
CHF
800,000
1,300,000
4,000,000
(2,100,000)
Stephanie prepares consolidated financial statements on December 31, 2020. 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.
a. Determine the translation adjustment to be reported on Stephanie's December 31, 2020, consolidated balance sheet, assuming that
the Swiss franc is the Swiss subsidiary's functional currency. What is the economic relevance of this translation adjustment?
b. Determine the remeasurement gain or loss to be reported in Stephanie's 2020 consolidated net income, assuming that the U.S.
dollar is the functional currency. What is the economic relevance of this remeasurement gain or loss?

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