Exercise Problem 1

Brisco Bricks purchases raw material from its foreign supplier, South Korea Clay, on May 8.
Payment of 2,000,000 foreign currency units (FCU) is due in 30 days. May 31 is Brisco's fiscal
year-end. The pertinent exchange rates were as follows:

May 8 E/R 1.25

May 31 E/R 1.26
Jun 7 E/R 1.20

1. For what amount should Brisco's Accounts Payable be credited on May 8?

2. How much Foreign Exchange Gain or Loss should Brisco record on May 31?

3. How much CLP $ will it cost Brisco to finally pay the payable on June 7?
EXAMPLE The following are the financial statements for Agee Company as of December 31,
2013 (Hungarian Forint).
STATEMENT OF FINANCIAL POSITION AT 12/31/2013(HUF)
Cash 8,000
Accounts Receivable 79,000
Buildings 97,000
Accum Dep - Bldgs (25,000)
Equipment 30,000
Accum Dep - Equip (5,000)
TOTAL ASSETS 184,000
Accounts Payable (24,000)
Bonds Payable (50,000)
Common Stock (80,000)
Retained Earnings
Beginning balance (30,000)
+ Profit (32,000)
- Dividend (10/1/13) 32,000
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (184,000)

PROFIT & LOSS STATEMENT 2013 (HUF)

Sales (80,000)
Salaries 20,000
Depreciation 15,000
Rent Expense 14,000
Utilities Expense 5,000
Gain on Sale of Building (6,000)
TOTAL PROFIT (32,000)

Additional Information:
STATEMENT OF FINANCIAL POSITION AT 1/1/2013(HUF) Exchange rate information:
Cash 35,000 2004 2.4
Accounts Receivable 35,000 2005 2.2
Buildings 118,000 January 1, 2013 2.5
Accum Dep - Bldgs (20,000)
April 1, 2013 2.6
TOTAL ASSETS 168,000
July 1, 2013 2.8
Accounts Payable (18,000)
October 1, 2013 2.9
Bonds Payable (50,000) December 31, 2013 3.0
Average for 2013 2.7
Common Stock (70,000)
Retained Earnings
Beginning balance (30,000)
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY (168,000)
 Additional information:
 Agee issued additional shares of common stock during the year on April 1, 2013.
Common stock at January 1, 2013, was sold at the start of operations in 2004.

 It purchased building in 2005 and sold one building with a book value of HUF 16,000
on July 1 of the current year

 Equipment was acquired on April 1, 2013.

Questions:

Translation of financial statements

Assuming the foreign currency is the functional currency and retained earnings at January 1,
2013 were CLP$62,319, what is the translation adjustment gain or loss for 2013?

Remeasurement of financial statements

Assuming the CLP $ is the functional currency and retained earnings at January 1, 2013 was CLP
$52,600, what is the remeasurement gain or loss for 2013?
Problem 2
Perez Company, a Colombian subsidiary of a Chilean company, sold equipment costing COP 200,000
with accumulated depreciation of COP 75,000 for COP 140,000 on March 1, 2013. The equipment was
purchased on January 1, 2012. Relevant exchange rates for the COP are as follows:

January 1, 2012 CLP $0.11

March 1, 2013 CLP $0.106
December 31, 2013 CLP $0.102
Average, 2013 CLP $0.105

The functional currency for Perez is the Colombian peso. What amount of gain or loss would be reported
in its translated Profit & Loss Statement?

Problem 3
A subsidiary of Porter S.A., a Chilean company, was located in a foreign country. The functional
currency of this subsidiary was the COP, the local currency where the subsidiary is located. The
subsidiary acquired inventory on credit on November 1, 2012, for COP 120,000 that was sold on
January 17, 2013 for COP 156,000. The subsidiary paid for the inventory on January 31, 2013.
Currency exchange rates between the Chilean peso and the Colombian Peso were as follows:

November 1, 2012 CLP $0.19=COP 1

December 31, 2012 CLP $0.20=COP 1
January 1, 2013 CLP $0.22=COP 1
January 31, 2013 CLP $0.23=COP 1
Average for 2013 CLP $0.24=COP 1

1. What amount would have been reported for this inventory in Porter's consolidated
Statement of Financial Position at December 31, 2012?

2. What amount would have been reported for cost of goods sold on Porter's consolidated
Profit & Loss Statement at December 31, 2013?
Problem 4
On January 1, 2013, Veldon S.A, a Chilean corporation with the Chilean Peso as its functional currency,
established Malont as a subsidiary. Malont is located in the country of Hungary, and its functional
currency is the Hungarian Forint. Malont engaged in the following transactions during 2013:

January 1, 2013 Issued common stock for HUF 500,000

July 14, 2013 Sold a patent at a gain of HUF 40,000
October 1, 2013 Paid dividends of HUF 60,000

Malont’s operating revenues and expenses were HUF 800,000 and HUF 650,000 respectively.
The appropriate exchange rates were:

January 01, 2013 = HUF 1 = CLP $2.5

July 14, 2013 = HUF 1 = CLP $2.1
October 1, 2013 = HUF 1 = CLP $2.6
December 31, 2013 = HUF 1 = CLP $2.7
Average for 2013 = HUF 1 = CLP $2.4

1. Compute the CLP $ amount for dividend paid in 2013

2. Compute the CLP $ amount for the Gain on sale of patent

3. Compute the CLP $ Profit for 2013

4. Compute the translation adjustment for Malont. Credit or Debit?
Problem 5
Pan S.A., a Chilean company, formed a South Korean subsidiary on January 1, 2012 by investing
450,000 South Korean Won (₩) in exchange for all of the subsidiary's common stock. The South
Korean subsidiary, Skillet, purchased real property on April 1, 2012 at a cost of ₩500,000, with
₩100,000 allocated to land and ₩400,000 allocated to a building. The building is depreciated
over a 40-year estimated useful life on a straight-line basis with no salvage value. The South
Korean Won is Skillet's functional currency and its reporting currency. Exchange rates for the
won on various dates were:

January 01, 2012 = 1₩ = CLP $1.60

April 01, 2012 = 1₩ = CLP $1.61
December 31, 2012 = 1₩ = CLP $1.68
2012 average rate = 1₩ = CLP $1.66

Skillet's balance and Profit & Loss Statement are presented below for the year ended
December 31, 2012.

Statement of Financial Position In Won ₩ Profit & Loss Statement In Won ₩

Sales revenue 600,000
Cash 220,000
Cost of goods sold (220,000)
Accounts receivable 52,000 Depreciation expense (7,500)
Inventory 59,000
Other expenses (110,000)
Building 400,000
262,500
Accumulated depreciation (7,500)
Land 100,000
Total Assets 823,500

Accounts payable 111,000

Common stock 450,000
Retained earnings 12/31/12 262,500
Total Liabilities and Equity 823,500

1. Compute the CLP $ Total Assets for 2012

2. Compute the CLP $ Total Liabilities for 2012

3. Compute the CLP $ Profit for 2012

4. Compute the CLP $C/S and Retained Earning at the end 2012

5. Compute the translation gain or loss for 2012

Problem 6
Pan S.A., a Chilean company, formed a South Korean subsidiary, Skillet, on January 1, 2012 by investing
450,000 South Korean Won (₩) in exchange for all of the subsidiary's common stock. The South Korean
Won is Skillet's functional currency and its reporting currency.

Skillet has now ended its second year of operations on December 31, 2013. Relevant exchange rates are:

January 01, 2012 = 1₩ = CLP $1.60

April 01, 2012 = 1₩ = CLP $1.61
December 31, 2012 = 1₩ = CLP $1.68
2012 average rate = 1₩ = CLP $1.66
January 01, 2013 = 1₩ = CLP $1.68
December 31, 2013 = 1₩ = CLP $1.75
2013 average rate = 1₩ = CLP $1.73

Skillet's balance and Profit & Loss Statement is presented below for the year ending on December 31,
2013.

Statement of Financial Position In Won ₩ Profit & Loss Statement In Won ₩

Sales revenue 616,250
Cash 75,000
Cost of goods sold (380,000)
Accounts receivable 362,000
Depreciation expense (10,000)
Inventory 41,000
Other expenses (133,000)
Building 400,000
93,250
Accumulated depreciation (17,500)
Land 100,000
Total Assets 960,500

Accounts payable 154,750

Common stock 450,000
Retained earnings 12/31/13 355,750
Total Liabilities and Equity 960,500

Additional Information:
 The real property was purchased on April 1, 2012 at a cost of ₩500,000, with ₩100,000
allocated to land and ₩400,000 allocated to a building. The building is depreciated over a 40-
year estimated useful life on a straight-line basis with no salvage value.

 Retained earnings at 12/31//12 was ₩262,500 (CLP$435,750)

1. Compute the CLP $ Statement of Financial Position total amount for current assets at December
31, 2013
2. Compute the CLP $ Statement of Financial Position amount for noncurrent assets at December
31, 2013

3. Compute the CLP $Statement of Financial Position amount for total assets at December 31, 2013

4. Compute the CLP $Statement of Financial Position amount for total liabilities at December 31,
2013

5. Compute the CLP $ amount for Profit on 2013

6. Compute the CLP $. Retained Earnings at December 31, 2013

7. Compute the translation gain or loss for 2013

8. Compute the balance of the OCI-Translation adjustment account at December 31, 2013
Problem 7
Perez Company, a Colombian subsidiary of a Chilean company, sold equipment costing COP 200,000
with accumulated depreciation of COP 75,000 for COP 140,000 pesos on March 1, 2013. The equipment
was purchased on January 1, 2012. Relevant exchange rates for the peso are as follows:

January 1, 2012 CLP $0.11

March 1, 2013 CLP $0.106
December 31, 2013 CLP $0.102
Average, 2013 CLP $0.105

The functional currency for Perez is the CLP $. What amount of gain or loss would be reported in its
translated Profit & Loss Statement?
Problem8
Quadros, a Indonesian firm was acquired by a Chilean company on January 1, 2012. Selected
account balances are available for the year ended December 31, 2013, and are stated in
Indonesian Rupiah, the local currency.

Sales Rp 400,000
Inventory (bought on February 1, 2013) Rp 20,000
Equipment (bought on January 1, 2012) Rp 90,000
Dividends (paid on September 1, 2013) Rp 20,000
Accumulated depreciation – Equipment 12/31/13 Rp 45,000
Depreciation Expense – Equipment, 2013 Rp 9,000

Relevant exchange rates for 1 Indonesian Rupiah are given below:

January 1, 2012 CLP $.91

January 1, 2013 CLP $.93
February 1, 2013 CLP $.94
September 1, 2013 CLP $.97
December 31, 2013 CLP $1.01
4th quarter average 2012 CLP $.90
4th quarter average 2013 CLP $.98
Average 2013 CLP $.95

1. Assume the functional currency is the CLP $, compute the CLP $ Profit & Loss Statement
amount for sales for 2013.

2. Assume the functional currency is the CLP $, compute the CLP $ Statement of Financial
Position amount for inventory, at cost, for 2013.
3. Assume the functional currency is the CLP $, compute the CLP $ Statement of Financial
Position amount for equipment for 2013.

4. Assume the functional currency is the CLP $, compute the CLP $ statement of retained
earnings amount for dividends for 2013.

5. Assume the functional currency is the CLP $, compute the CLP $ Statement of Financial
Position amount for accumulated depreciation for 2013.

6. Assume the functional currency is the CLP $, compute the CLP $ Profit & Loss Statement
amount for depreciation expense for 2013.
Problem 9
The Polka Corporation, a Chilean company, formed a South Korean subsidiary on January 1, 2013 by
investing 550,000 South Korean Won (₩) in exchange for all of the subsidiary's no-par common stock.
The South Korean subsidiary, Stripe Corporation, purchased real property on April 1, 2013 at a cost of
₩500,000, with ₩100,000 allocated to land and ₩400,000 allocated to the building. The building is
depreciated over a 40-year estimated useful life on a straight-line basis with no salvage value. The CLP$
is Stripe's functional currency, but it keeps its records in Won. Exchange rates for the won on various
dates are:

January 01, 2013 = 1₩ = CLP $1.60

April 01, 2013 = 1₩ = CLP $1.62
December 31, 2013 = 1₩ = CLP $1.65
2013 average rate = 1₩ = CLP $1.64

Stripe's Statement of Financial Position and Profit & Loss Statement in Won is presented below for the
year ended December 31, 2013.
Profit & Loss Statement ₩
Statement of Financial Position
Sales 544,000
₩ Salary expenses (208,000)
Cash 200,000 Other expenses (115,000)
A/R 72,000 Depreciation (7,500)
Notes Receivables (to be collected within 1 year) 99,000 Profit 213,500
Building 400,000
Accumulated depreciation (7,500)
Land 100,000
Total Assets 863,500

A/P 100,000
Common Stocks 550,000
R/E 12/31/2013 213,500
Total Liabilities and Equities 863,500
1. Compute the CLP $ Statement of Financial Position total amount for current asset at December
31, 2013

2. Compute the CLP $ Statement of Financial Position amount for building at December 31, 2013

3. Compute the CLP $ amount for depreciation expense for 2013

4. Compute the CLP $ Statement of Financial Position amount for land at December 31, 2013

5. Compute the CLP $ Statement of Financial Position amount for total assets at December 31,
2013

6. Compute the CLP $ Statement of Financial Position amount for total liabilities at December 31,
2013
7. Compute the CLP $ amount for Remeasurement gain or loss for the year ended on December
31, 2013

8. Compute the CLP $ amount for Profit on 2013

Problem 10
Stripe, a South Korean subsidiary of Polka S.A. (a Chilean company) was formed by Polka on
January 1, 2013 in exchange for all of the subsidiary's common stock. Stripe has now ended its
second year of operations on December 31, 2014. Relevant exchange rates are:

January 01, 2013 = 1₩ = $1.60

April 01, 2013 = 1₩ = $1.62
January 01, 2014 = 1₩ = $1.65
December 31, 2014 = 1₩ = $1.57
2014 average rate = 1₩ = $1.56

Additional information:
 The South Korean subsidiary, Stripe, purchased real property on April 1, 2013 at a cost
of ₩500,000, with ₩100,000 allocated to land and ₩400,000 allocated to the building.
The building is depreciated over a 40-year estimated useful life on a straight-line basis
with no salvage value.
 The CLP $ is Stripe's functional currency, but it keeps its records in Won.
 R/E at 12/31/2013 of ₩213,500 translated in CLP $ was $365,000

Stripe's adjusted trial balance is presented below for the calendar year 2014.

Statement of Financial Position Profit & Loss Statement ₩

₩ Sales 600,000
Salary expenses (376,000)
Cash 172,000
Other expenses (117,000)
A/R 308,000
Depreciation (10,000)
Notes Receivables (to be collected within 1 year) 98,000
Profit 97,000
Building 400,000
Accumulated depreciation (17,500)
Land 100,000
Total Assets 1,060,500

A/P 200,000
Common Stocks 550,000
R/E 12/31/13 310,500
Total Liabilities and Equities 1,060,500
1. Compute the CLP $ Statement of Financial Position total amount for current asset at December
31, 2014

2. Compute the CLP $Statement of Financial Position amount for building at December 31, 2014

3. Compute the CLP $ amount for depreciation expense for 2014

4. Compute the CLP $ Statement of Financial Position amount for land at December 31, 2014

5. Compute the CLP $ Statement of Financial Position amount for total assets at December 31,
2014

6. Compute the CLP $Statement of Financial Position amount for total liabilities at December 31,
2014
7. Compute the CLP$ amount for Remeasurement gain or loss for the year ended on December 31,
2014

8. Compute the CLP $ amount for Profit on 2014