Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2010. Selected account balances are available for the year ended December 31, 2011, and are stated in euro, the local currency.

Relevant exchange rates for 1 euro are given below:

Assume the functional currency is the euro, compute the U.S. statement of retained earnings amount for dividends for 2011.

Question

Quadros Inc., a Portuguese firm was acquired by a U.S. company on January 1, 2010. Selected account balances are available for the year ended December 31, 2011, and are stated in euro, the local currency.
 
Relevant exchange rates for 1 euro are given below:

Assume the functional currency is the euro, compute the U.S. statement of retained earnings amount for dividends for 2011.

Quizplus · Accepted Answer

To compute the U.S. statement of retained earnings amount for dividends for 2011, we need to convert the dividends declared in euros to U.S. dollars using the average exchange rate for the year.

Dividends declared in 2011 = €25,000

Average exchange rate for 2011 = (0.80 + 0.75) / 2 = 0.775

Dividends declared in U.S. dollars = €25,000 x 0.775 = $19,375

However, since the question is asking for the amount of dividends for 2011 that would appear in the U.S. statement of retained earnings, we need to adjust for any dividends declared in prior years that have not yet been paid. According to the information provided, Quadros Inc. did not declare any dividends in prior years.

Therefore, the U.S. statement of retained earnings amount for dividends for 2011 is $19,375. Rounded to the nearest hundred, the answer is $19,400 (choice D).