On December 18, 2020, Stephanie Corporation acquired 100 percent of a Swiss company for 4.006 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: 806,000 1,306, 000 4,006,000 (2,112,000) Cash CHF Inventory Property, plant, and equipment Notes payable Stephanie prepares consolidated financial statements on December 31, 202O. 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?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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On December 18, 2020, Stephanie Corporation acquired 100 percent of a Swiss company for 4.006 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
CHF
Inventory
Property, plant, and equipment
Notes payable
806,000
1,306,000
4,006,000
(2,112,000)
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?
Translation adjustment
positive
(400,600)
a.
b.
Remeasurement loss
Transcribed Image Text:On December 18, 2020, Stephanie Corporation acquired 100 percent of a Swiss company for 4.006 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 CHF Inventory Property, plant, and equipment Notes payable 806,000 1,306,000 4,006,000 (2,112,000) 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? Translation adjustment positive (400,600) a. b. Remeasurement loss
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Translation gain or loss is calculated when home currency is translated into terms of another currency.

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