question archive On January 1, Year 4, Domino purchased 100 percent of the outstanding common shares of Chess for 50,000 foreign currency units (FC)
On January 1, Year 4, Domino purchased 100 percent of the outstanding common shares of Chess for 50,000 foreign currency units (FC)
Subject:FinancePrice: Bought3
On January 1, Year 4, Domino purchased 100 percent of the outstanding common shares of Chess for 50,000 foreign currency units (FC). Chess is located in Zania. On January 1, Year 4, it had common shares of FC30,000 and retained earnings of FC10,000. At the date of acquisition, the acquisition differential was allocated entirely to buildings, with a remaining useful life of 20 years.
Chess's financial statements at December 31, Year 5, are shown below in the FC of its native country:
INCOME STATEMENTfor the Year Ended December 31, Year 5SalesFC 130,000 Beginning inventory15,000 Purchases66,000 Ending inventory(12,000)Cost of goods sold69,000 Gross profit61,000 Operating expenses31,000 Depreciation expense12,000 ProfitFC 18,000
STATEMENT OF FINANCIAL POSITION
Plant and equipment (net)FC 34,000Inventory15,000Current monetary assets43,000 FC 92,000Common sharesFC 30,000Retained earnings15,00010% bonds payable20,000Current monetary liabilities27,000 FC 92,000
Sales, purchases, and operating expenses were made evenly throughout the year. Year-end inventory was purchased at the year-end rate. Equipment additions of FC5,000 with a useful life of five years were purchased on January 1, Year 5. There were no other purchases or sales of capital assets in Year 4 or Year 5. In Year 4, Chess earned FC20,000 and paid dividends of FC18,000. In Year 5, Chess paid dividends of FC15,000. Dividends were declared and paid on December 31 of each year. The bonds payable were issued on January 1, Year 4, and mature on January 1, Year 9.
Chess's net current monetary position at December 31, Year 4, was FC10,000. Chess's retained earnings at December 31, Year 4, were FC12,000.
Exchange rates at various dates are given below.
January 1, Year 4FC1 = $2.05Average, Year 4FC1 = $2.15January 1, Year 5FC1 = $2.20Average, Year 5FC1 = $2.25December 31, Year 5FC1 = $2.30
Which of the following amounts would be reported as depreciation expense on Chess's translated financial statements at December 31, Year 5, assuming it is an integrated subsidiary (i.e., the functional currency of the foreign operation is the same as the parent)?
Multiple Choice
- $24,600
- $25,800
- $26,400
- $26,600
