Marshall Co. was formed on January 1, 2021 as a wholly owned foreign subsidiary of a U.S. corporation. Marshall'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

Marshall Co. was formed on January 1, 2021 as a wholly owned foreign subsidiary of a U.S. corporation. Marshall'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 convert the beginning and ending balances of Marshall Co.'s net assets from stickles to U.S. dollars using the average exchange rate for the year.

Beginning net assets: 
1,400,000 § x 0.009 = $12,600

Ending net assets: 
2,200,000 § x 0.007 = $15,400

The increase in net assets was $2,800. However, because the stickle depreciated in value relative to the U.S. dollar, the translation adjustment is a decrease in the relative value of net assets.

Translation adjustment: 
$15,400 - $12,600 - $2,000 = $800 (or §121,000)

Therefore, the correct answer is B, a $121,000 decrease in the relative value of net assets.