Translated and Remeasured Trial BalancesThe Thode Company established a wholly-owned subsidiary in Saudi Arabia on January 1, 2016, when the exchange rate was $0.30/riyal (SAR). Of Thode's initialSAR160,000,000 investment, SAR80,000,000 was used to acquire plant assets (ten-year life) and SAR40,000,000 was used to acquire inventory. The remaining amount wasinitially held as cash by the subsidiary.During 2016, the subsidiary reported net income of SAR16,000,000. Inventory purchases of SAR12,000,000 were made evenly during the year. It paid dividends ofSAR8,000,000 on September 30, when the exchange rate was $0.255/SAR. No other transactions occurred between the subsidiary and the parent. The subsidiary'scondensed income statement appears below:SalesCost of goods soldDepreciation expenseOther cash expensesNet incomeSAR68,000,000(32,000,000)*(8,000,000)**(12,000,000)SAR16,000,000*Assume a FIFO inventory flow assumption.**Relates solely to plant assets acquired on January 1, 2016.The average rate during the year was $0.265/SAR. On the balance sheet date, it was $0.25/SAR. (a) Assuming the functional currency is the riyal, translate the subsidiary's preclosing trial balance at December 31, 2016, and prepare a schedule calculating the subsidiary'stranslation gain or loss for 2016.• Use negative signs with your Cr (credit balance) answers, in the P Dr(Cr) and $ Dr(Cr) columns only.• Enter answers using all zeros (do not abbreviate answers to millions or thousands).December 31, 2016Translated Trial BalanceCashInventoryPlant assetsCapitalDividendsSalesCost of goods soldDepreciation expenseOther expensesOther comprehensive loss (translation gain or loss)Net incomeSARSARSARDr (Cr)68,000,000 *(32,000,000) *80,000,000 *76,000,000 *8,000,000 ✓68,000,000 *(32,000,000) *76,000,000 *(12,000,000) *0✔$/SAR0.265 * $0.265 *0.3 x0.3 ✔0.255 ✓0.265 ✓0.265 ✔0.3 x0.265✓below$$Dr (Cr)18,020,000 *8,480,000 *24,000,000 *22,800,000 *2,040,000✔18,020,000 *(8,480,000) *22,800,000 *(3,180,000) *0 x0✓

Answered: Translated and Remeasured Trial…

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Translated and Remeasured Trial Balances
The Thode Company established a wholly-owned subsidiary in Saudi Arabia on January 1, 2016, when the exchange rate was $0.30/riyal (SAR). Of Thode's initial
SAR160,000,000 investment, SAR80,000,000 was used to acquire plant assets (ten-year life) and SAR40,000,000 was used to acquire inventory. The remaining amount was
initially held as cash by the subsidiary.
During 2016, the subsidiary reported net income of SAR16,000,000. Inventory purchases of SAR12,000,000 were made evenly during the year. It paid dividends of
SAR8,000,000 on September 30, when the exchange rate was $0.255/SAR. No other transactions occurred between the subsidiary and the parent. The subsidiary's
condensed income statement appears below:
Sales
Cost of goods sold
Depreciation expense
Other cash expenses
Net income
SAR68,000,000
(32,000,000)*
(8,000,000)**
(12,000,000)
SAR16,000,000
*Assume a FIFO inventory flow assumption.
**Relates solely to plant assets acquired on January 1, 2016.
The average rate during the year was $0.265/SAR. On the balance sheet date, it was $0.25/SAR.

(a) Assuming the functional currency is the riyal, translate the subsidiary's preclosing trial balance at December 31, 2016, and prepare a schedule calculating the subsidiary's
translation gain or loss for 2016.
• Use negative signs with your Cr (credit balance) answers, in the P Dr(Cr) and $ Dr(Cr) columns only.
• Enter answers using all zeros (do not abbreviate answers to millions or thousands).
December 31, 2016
Translated Trial Balance
Cash
Inventory
Plant assets
Capital
Dividends
Sales
Cost of goods sold
Depreciation expense
Other expenses
Other comprehensive loss (translation gain or loss)
Net income
SAR
SAR
SAR
Dr (Cr)
68,000,000 *
(32,000,000) *
80,000,000 *
76,000,000 *
8,000,000 ✓
68,000,000 *
(32,000,000) *
76,000,000 *
(12,000,000) *
0✔
$/SAR
0.265 * $
0.265 *
0.3 x
0.3 ✔
0.255 ✓
0.265 ✓
0.265 ✔
0.3 x
0.265✓
below
$
$
Dr (Cr)
18,020,000 *
8,480,000 *
24,000,000 *
22,800,000 *
2,040,000✔
18,020,000 *
(8,480,000) *
22,800,000 *
(3,180,000) *
0 x
0✓

Expert Solution

Step 1: Introduction

The danger that a company's equity, assets, obligations, or income would change in value as a result of changes in exchange rates is known as translation exposure or translation risk. This occurs when a portion of a company's equity, assets, liabilities, or revenue is denominated in a foreign currency. This kind of risk is often referred to as accounting exposure. Accountants employ a variety of strategies to shield their clients' businesses against this kind of risk, including consolidating their financial accounts and applying the best cost accounting review methodologies. The financial accounts typically include the translation exposure as an exchange rate gain or loss.

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