Gale Co. was formed on January 1, 2021 as a wholly owned foreign subsidiary of a U.S. corporation. Gale's functional currency was the stickle (§). The following transactions and events occurred during 2021: Exchange rates for 2021 were:
What was the amount of the translation adjustment for 2021?

Question

Gale Co. was formed on January 1, 2021 as a wholly owned foreign subsidiary of a U.S. corporation. Gale's functional currency was the stickle (§). The following transactions and events occurred during 2021:  Exchange rates for 2021 were:
 What was the amount of the translation adjustment for 2021?

Quizplus · Accepted Answer

To calculate the translation adjustment, we need to use the average exchange rate for the year to translate the beginning net assets and the current exchange rate to translate the ending net assets.
Beginning net assets at January 1, 2021: §450,000 / $1.50 = $300,000
Ending net assets at December 31, 2021: §510,000 / $1.30 = $392,308. 
Translation adjustment = Ending net assets - Beginning net assets - (Cumulative translation adjustment) 
= $392,308 - $300,000 - $70,808 = -$79,500 
Therefore, the relative value of net assets decreased by $121,500 (the absolute value of -$79,500). The correct answer is B.

Gale Co Was Formed on January 1, 2021 as a Wholly