Tokyo Enterprises, a subsidiary of Worldwide Enterprises based in Dallas, reported the following information at the end of its first year of operations (all in yen): assets--110,000,000; expenses--41,000,000; liabilities--97,500,000; capital stock--5,500,000; revenues--48,000,000. Relevant exchange rates are as follows:

As a result of the translation process, what amount is recorded on the financial statements as the translation adjustment?

Question

Tokyo Enterprises, a subsidiary of Worldwide Enterprises based in Dallas, reported the following information at the end of its first year of operations (all in yen) : assets--110,000,000; expenses--41,000,000; liabilities--97,500,000; capital stock--5,500,000; revenues--48,000,000. Relevant exchange rates are as follows:

As a result of the translation process, what amount is recorded on the financial statements as the translation adjustment?

Quizplus · Accepted Answer

To determine the translation adjustment, we need to convert the yen values to US dollars using the given exchange rate of 110 yen per dollar. 
Assets: 110,000,000 / 110 = $1,000,000
Expenses: 41,000,000 / 110 = $372,727.27
Liabilities: 97,500,000 / 110 = $886,363.64
Capital Stock: 5,500,000 / 110 = $50,000
Revenues: 48,000,000 / 110 = $436,363.64

Next, we need to determine the difference between the translated equity and the original equity. Translated equity = assets - liabilities, which is $113,636.36. Original equity is capital stock + revenues - expenses, which is $113,636.36 as well. Therefore, there is no translation adjustment to be recorded for equity.

Finally, we need to determine the difference between the translated assets and liabilities. Translated liabilities - translated assets = $886,363.64 - $1,000,000 = -$113,636.36. This indicates that the translated liabilities are greater than the translated assets by that amount. Since liabilities are increased, we need to record a debit adjustment. The answer is therefore B) $76,000 debit adjustment.

Tokyo Enterprises, a Subsidiary of Worldwide Enterprises Based in Dallas