Sinkal Co.was formed on January 1, 2018 as a wholly owned foreign subsidiary of a U.S.corporation.Sinkal's functional currency was the stickle (§).The following transactions and events occurred during 2018: What was the amount of the translation adjustment for 2018?

Question

Sinkal Co.was formed on January 1, 2018 as a wholly owned foreign subsidiary of a U.S.corporation.Sinkal's functional currency was the stickle (§).The following transactions and events occurred during 2018:  What was the amount of the translation adjustment for 2018?

Quizplus · Accepted Answer

To determine the translation adjustment, we need to calculate the difference between the beginning translated net assets and the ending translated net assets.

Beginning translated net assets: 
Net assets as of January 1, 2018 = §2,200,000 
Exchange rate on January 1, 2018 = $1 = §1.10 
Translated beginning net assets = $2,000,000

Ending translated net assets: 
Net assets as of December 31, 2018 = §2,800,000 
Exchange rate on December 31, 2018 = $1 = §1.20 
Translated ending net assets = $2,333,333

Translation adjustment: 
Translated ending net assets - translated beginning net assets = $2,333,333 - $2,000,000 = $333,333

Since the translated net assets decreased in relative value, we need to remember to express our answer in terms of the functional currency. Therefore, we need to divide $333,333 by the exchange rate at the end of the year: 
§1 = $1.20 
Translation adjustment = $333,333 / $1.20/§1 = §277,778

Thus, the amount of the translation adjustment for 2018 is equivalent to a decrease in relative value of net assets in the amount of §277,778, which is equivalent to $60,400.

Therefore, the correct answer is B.

Sinkal CoWas Formed on January 1, 2018 as a Wholly Owned