Accounting treatment for foreign currency transaction

See attached Excel file.

Chapter 8

Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2007 by acquiring all
of the common stock for §50,000. This subsidiary immediately borrowed §120,000 on a five-year
note with ten percent interest payable annually beginning on January 1, 2008. A building was then
purchased for §170,000. This property had a ten-year anticipated life and no salvage value and
was to be depreciated using the straight-line method. The building was rented for three years to a
group of local doctors for §6,000 per month. By year-end, payments totaling §60,000 had been
made. On October 1, §5,000 was paid for a repair made on that date. A cash dividend of §6,000
was transferred back to Ginvold on December 31, 2007. The functional currency for the subsidiary
was the stickle. Currency exchange rates were as follows:

§1 =
January 1, 2007 $2.40
October 1, 2007 $2.22
December 31, 2007 $2.16
2007 Average $2.28
PART A
Stickles Rate Dollars
Income
Rent revenue 72,000
Interest expense (12,000)
Depreciation expense (17,000)
Repair expense (5,000)

Net income 38,000

Retained Earnings
Beginning 0
Net income 38,000
Dividend (6,000)
Ending 32,000

Balance Sheet
Cash 49,000
Accounts receivable 12,000
Building 170,000
Accumulated depreciation (17,000)
Total assets 214,000

Interest payable 12,000
Note payable 120,000
Common stock 50,000
Retained earnings 32,000
Translation adjustment
Total liabilities and equities 214,000

Required:
A. Translate the financial statements above.
B. If the functional currency was dollars ($), recompute the financial statements.

PART B
Stickles Rate Dollars
Income
Rent revenue 72,000
Interest expense (12,000)
Depreciation expense (17,000)
Repair expense (5,000)
Remeasurement gain
Net income 38,000

Retained Earnings
Beginning 0
Net income 38,000
Dividend (6,000)
Ending 32,000

Balance Sheet
Cash 49,000
Accounts receivable 12,000
Building 170,000
Accumulated depreciation (17,000)
Total assets 214,000

Interest payable 12,000
Note payable 120,000
Common stock 50,000
Retained earnings 32,000
Translation adjustment
Total liabilities and equities 214,000