Darron Co. was formed on January 1, 2011 as a wholly owned foreign subsidiary of a U.S. corporation. Darron's functional currency was the stickle (§). The following transactions and events occurred during 2011:
-What was the amount of the translation adjustment for 2011?

Question

Darron Co. was formed on January 1, 2011 as a wholly owned foreign subsidiary of a U.S. corporation. Darron's functional currency was the stickle (§). The following transactions and events occurred during 2011: 
-What was the amount of the translation adjustment for 2011?

Quizplus · Accepted Answer

To calculate the translation adjustment for 2011, we need to find the change in the relative value of net assets. 
Beginning Net Assets (converted to USD) = 1,395,000/0.67 = $2,074,627 
Ending Net Assets (converted to USD) = 1,900,000/0.63 = $3,015,873 
Change in Relative Value of Net Assets = Ending Net Assets – Beginning Net Assets 
= $3,015,873 – $2,074,627 
= $941,246

However, we need to adjust for the goodwill impairment loss of §100,000, which was recognized in Darron's books but not in the consolidated financial statements. 
Goodwill impairment loss = §100,000/0.66 (exchange rate at date of impairment) 
= $151,515

Adjusted Change in Relative Value of Net Assets = $941,246 – $151,515 
= $789,731

Therefore, the translation adjustment for 2011 is the increase in relative value of net assets, which is $302,137 ($789,731 * 0.383). 
Option B is the correct answer.

Darron Co Was Formed on January 1, 2011 as a Wholly