Robbins Corporation has a wholly-owned foreign subsidiary, Bertke, Ltd.Bertke's functional currency is the currency of the country in which it is located.Information extracted from Bertke's financial statements follow: ?
$\begin{array}{lrr}
&2017&2016\
\text { Common stock, no par value } & \text { FC 200,000 } & \text { FC 100,000 } \
\text { Retained earnings } & 400,000 & 350,000 \
\text { Net income } & 70,000 & 60,000 \
\text { Dividends (ded ared September 30) } & 20,000 & 10,000
\end{array}$ Robbins increased its investment in Bertke on March 31, 2017.Exchange rate information for the period follows:

$\begin{array}{lrr}
&2017&2016\
\text { December } 31 & 1 \mathrm{FC}=\$ 2.30 & 1 \mathrm{FC}=\$ 2.10 \
\text { Average } & 2.24 & 2.12 \
\text { March } 31 & 2.15 & 2.08 \
\text { September 30 } & 2.28 & 2.07
\end{array}$
The amount of the translation adjustment is:

A)$108,400
B)$109,600
C)$99,000
D)$108,800

Question

Robbins Corporation has a wholly-owned foreign subsidiary, Bertke, Ltd.Bertke's functional currency is the currency of the country in which it is located.Information extracted from Bertke's financial statements follow: ?
$\begin{array}{lrr}
&2017&2016\
\text { Common stock, no par value } & \text { FC 200,000 } & \text { FC 100,000 } \
\text { Retained earnings } & 400,000 & 350,000 \
\text { Net income } & 70,000 & 60,000 \
\text { Dividends (ded ared September 30) } & 20,000 & 10,000
\end{array}$ Robbins increased its investment in Bertke on March 31, 2017.Exchange rate information for the period follows:

$\begin{array}{lrr}
&2017&2016\
\text { December } 31 & 1 \mathrm{FC}=\$ 2.30 & 1 \mathrm{FC}=\$ 2.10 \
\text { Average } & 2.24 & 2.12 \
\text { March } 31 & 2.15 & 2.08 \
\text { September 30 } & 2.28 & 2.07
\end{array}$ 
The amount of the translation adjustment is:

A)$108,400
B)$109,600
C)$99,000
D)$108,800

Quizplus · Accepted Answer

The translation adjustment is calculated by translating the equity at the current rate and subtracting the translated beginning equity and translated net income, plus translated dividends. For 2017, the calculation is as follows:1. Common stock at December 31, 2017: FC 200,000 * $2.30 = $460,0002. Retained earnings at December 31, 2017: FC 400,000 * $2.30 = $920,0003. Total equity at December 31, 2017: $460,000 + $920,000 = $1,380,000For the beginning of 2017:1. Common stock at December 31, 2016: FC 100,000 * $2.10 = $210,0002. Retained earnings at December 31, 2016: FC 350,000 * $2.10 = $735,0003. Total beginning equity: $210,000 + $735,000 = $945,000Net income for 2017 is translated at the average rate: FC 70,000 * $2.24 = $156,800Dividends for 2017 are translated at the rate when declared: FC 20,000 * $2.28 = $45,600The translation adjustment is calculated as:$$ \text{Ending Equity} - (\text{Beginning Equity} + \text{Translated Net Income} - \text{Translated Dividends}) $$$$ = \$1,380,000 - (\$945,000 + \$156,800 - \$45,600) $$$$ = \$1,380,000 - (\$1,056,200) $$$$ = \$323,800 $$However, this calculation does not match any of the provided options, indicating a misunderstanding in the calculation process. The correct approach involves understanding that the translation adjustment comes from the difference in translating all equity-related items at the current rate versus their historical rates. Given the data and options provided, the correct calculation should focus on the impact of exchange rate changes on the equity items' translation, not directly calculating the equity translation as done above.The correct answer, based on the options provided and understanding that the calculation above does not directly lead to the correct methodology for determining the translation adjustment, would involve recalculating based on the proper translation adjustment methodology, which involves the impact of exchange rate changes on the balance sheet items. However, without the specific calculation steps leading to one of the provided options, the detailed answer provided above does not accurately reflect the correct process for determining the translation adjustment in this context. The correct process involves analyzing the impact of changing exchange rates on the translated values of equity, net income, and dividends, and how these changes affect the overall translation adjustment, which is not directly calculated in the explanation above.

Robbins Corporation Has a Wholly-Owned Foreign Subsidiary, Bertke, Ltd Robbins Increased Its Investment in Bertke on March 31, 2017