Chapter 10, Problem 38P

a.

To determine

Prepare the Mexican peso trail balance for Company C S.A. for the year ending December 31, 2015 verify the amount of remesurement gain/loss derived as a plug figure in the spreadsheet through separate calculation.

Explanation of Solution

Re-measurement of foreign currency balance: A portion of subsidiary’s operation is in Brazil. These balances must be remeasured into functional currency before the transaction process begins. In measuring these accounts using temporal method, peso value of the monetary assets and liabilities is determined by using the current (C) exchange rate $\left(6.3MXN/BRI\right)$ where all other accounts are remeasured at historical (H) or average (A) rates.

Particulars	BRL		Exchange Rate	MXN
	Debit	Credit		Debit	Credit
Cash	5,500		6.3C	34,650
Account Receivable	28,000		6.3C	176,400
Notes payable		5,000	6.3C		31,500
Sales		35,000	6.3A		217,000
Rent Expenses	6,000		6.3A	37,200
Interest Expenses	500		6.3A	3,100
Total	40,000	40,000		251,350	248,500
Remeserment  gain					2,850
Total				251,350	251,350

Table: (1)

Re-measurement gain for 2015:

Particular	Amount
Net monetary assets 1/1/2015	0
Increase in net monetary items operation:
( Sales-Rent-Interest) $\text{BRL}28500\times 6.2\text{A}$	176,700
Decrease in net monetary items operation :
Net current asset                28,500	176,700
Net asset at  current rate $\left(28,500\times 6.3\right)$	179,550
Remeserment gain/(loss)	2,850

Table: (2)

The net monetary assets exposure cash and accounts receivable (notes payable) of BRL created gain of 2850 BRL.

The re-measured figures from BRL must be combined in some manner with the subsidiary’s trial balance. So, re-measured trial balance as Brazil branch should be reported as follows:

Particulars	MXN
	Debit	Credit
Cash	34,650
Account Receivable	176,400
Notes payable		31,500
Sales		217,000
Rent Expenses	37,200
Interest Expenses	3,100
Total	251,350	248,500
Remeserment  gain		2,850
Total	251,350	251,350

Table: (3)

Preparation of adjustment trial balance in Mexican Peso:

Particulars	Unadjusted		Adjustments		Adjusted
	Debit	Credit	Debit	Credit	Debit	Credit
Cash	1,000,000		34,650		1,034,650
Account Receivable	3,000,000		176,400		3,176,400
Inventory	5,000,000	5,000			5,000,000
Land	2,000,000	35,000			2,000,000
Machinery and equipment	15,000,000				15,000,000
Accumulated Depreciation		6,000,000				6,000,000
Accounts Payable		1,500,000				1,500,000
Notes payable		4,000,000		31,500		4,031,500
Common stock		12,000,000				12,000,000
Retained earnings (1/1/2015)		2,500,000				2,500,000
Sales		34,000,000		217,000		34,217,000
Cost of goods sold	28,000,000				28,000,000
Depreciation Expenses	600,000				600,000
Rent Expenses	3,000,000		37,200		3,037,200
Interest Expenses	400,000		3,100		403,100
Dividend Expenses 7/1/2015	2,000,000				2,000,000
Re-measurement Gain				2,850		2850
Total	60,000,000	60,000,000	251,350	251,350	6,0251,350	6,0251,350

Table: (4)

Having established all accounts balances in the functional currency (MXN) the subsidiary’s trial balance now can be translated into US Dollar, under the current rate method, the dollar value to be reported for income statement items are based on the average exchange rate for the current year.

All assets and liabilities are translated at the current exchange rate at the balance sheet data and equity in effect at the date of accounting recognition.

b.

To determine

Using the part a translate Company C SA’s peso trial balance into US Dollar to facilitate Company M’s preparation of consolidated financial statements, verify the amount of cumulative translation adjustment desired as a plug figure in the spreadsheet through separate calculation.

Explanation of Solution

Translation of subsidiaries trial balance into US Dollar using current rate method as functional currency is local currency.

Trial balance as on December 31, 2015:

Particulars	NMX		Exchange rate	US Dollar
	Debit	Credit	Amount	Debit	Credit
Cash	1,034,650		0.072C	74,494.8
Account Receivable	3,176,400		0.072C	228,700.8
Inventory	5,000,000		0.072C	360,000
Land	2,000,000		0.072C	144,000
Machinery and equipment	15,000,000		0.072C	1,080,000
Accumulated Depreciation		6000000	0.072C		432,000
Accounts Payable		1500000	0.072C		1,080,000
Notes payable		4,031,500	0.072C		290,268
Common stock		12,000,000	Given		1,000,000
Retained earnings (1/1/2015)		2,500,000	Given		200,000
Sales		34,217,000	0.075A		2,566,275
Cost of goods sold	28,000,000		0.075A	2,100,000
Depreciation Expenses	600,000		0.075A	45,000
Rent Expenses	3,037,200		0.075A	227,790
Interest Expenses	403,100			30,232.5
Dividend Expenses 7/1/2015	2,000,000			146000
Remesurement Gain		2,850			213.75
Total ( of all)	60,251,350	60,251,350		4436218.1	4,596,756.75
Cumulative translation adjustment				160538.65
	60,251,350	60,251,350		4,596,756.75	4,596,756.75

Table: (5)

The Cumulative translation adjustment at 12/31/2015 comprises the beginning balance (given) plus the translation adjustment for the current year.

Translation adjustment, 2015:

Particular	Amount
Net assets 1/1/2015  $14,500,000\times 0.080$ ( Common stock + Retained earnings 12000000 + 2500000)	1,160,000
Increase in net assets:
Net income 2015 $217,550\times 0.075\text{A}$	163,466.25
Decrease in net assets:
Dividend (7/1/2015) $\left(2,000,000\right)\times 0.073\text{H}$	(146,000)
Net asset  (12/31/15)   14,679,550	1,177,466.25
Net asset at  current rate $14,679,550\times 0.072\text{C}$	1,056,927.6
Translation adjustment, 2015 ( negative)	120,538.65

Table: (6)