Sinkal Co.was formed on January 1, 2018 as a wholly owned foreign subsidiary of a U.S.corporation.Sinkal's functional currency was the stickle (§).The following transactions and events occurred during 2018: What was the amount of the translation adjustment for 2018?

Question

Sinkal Co.was formed on January 1, 2018 as a wholly owned foreign subsidiary of a U.S.corporation.Sinkal's functional currency was the stickle (§).The following transactions and events occurred during 2018:  What was the amount of the translation adjustment for 2018?

Quizplus · Accepted Answer

To calculate the translation adjustment, we need to compare the functional currency's value at the beginning of the year with its value at the end of the year. 
Beginning of the year: 1§ = $0.25
End of the year: 1§ = $0.20
This means that the value of the functional currency has decreased relative to the US dollar. To calculate the translation adjustment, we need to find the change in the functional currency's value relative to the net assets of the subsidiary. 
Translation adjustment = (Beginning net assets - Ending net assets) x Ending functional currency rate 
= ($1,200,000 - $1,080,000) x $0.20
= $60,400 decrease in relative value of net assets. 
Therefore, the correct answer is B.

Sinkal CoWas Formed on January 1, 2018 as a Wholly Owned