Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2021, have been restated into U.S. dollars as follows: Assuming the functional currency of the subsidiary is the local currency, what total should be included in Parker's consolidated balance sheet at December 31, 2021, for the above items?

Question

Certain balance sheet accounts of a foreign subsidiary of Parker Company at December 31, 2021, have been restated into U.S. dollars as follows:  Assuming the functional currency of the subsidiary is the local currency, what total should be included in Parker's consolidated balance sheet at December 31, 2021, for the above items?

Quizplus · Accepted Answer

To convert the subsidiary's financial statements into U.S. dollars, we need to use the current exchange rate, which is 1 USD = 1.2 local currency. Therefore, we can calculate the U.S. dollar amounts for each item as follows:

- Cash: 50,000 local currency / 1.2 USD per local currency = 41,667 USD
- Accounts receivable: 100,000 local currency / 1.2 USD per local currency = 83,333 USD
- Inventory: 150,000 local currency / 1.2 USD per local currency = 125,000 USD
- Property, plant, and equipment: 300,000 local currency / 1.2 USD per local currency = 250,000 USD

Total U.S. dollar amount = 41,667 + 83,333 + 125,000 + 250,000 = 500,000 USD
Since Parker Company owns 80% of the subsidiary, it should include 80% of the total amount in its consolidated balance sheet. Therefore, the answer is 0.8 x 500,000 USD = 400,000 USD or option B.

Certain Balance Sheet Accounts of a Foreign Subsidiary of Parker