On January 1 20X1 Kiner Company formed a foreign subsidiary

On January 1, 20X1, Kiner Company formed a foreign subsidiary that issued all of its currently outstanding common stock on that date Selected accounts from the balance sheets, all of which are shown in local currency units, are as follows December 31 20X2 20X1 Accounts Receivable (net of allowance for uncollectible accounts of 2,100 LCU on December 31, 20X2, and 1,900 LCU on December 31, 20X1) LCU 39,000 LCU 34,000 63,000 68,000 Inventories, at cost Property, Plant & Equipment (net of allowance for accumulated depreciation of 34,000 LCU on December 31, 20x2, and 15, 000 LCU on December 31, 20X1) 179,000 110,000 158,000 130,000 Long-Term Debt Common Stock, authorized 17,000 shares, par value 10 LCU per share; issued and outstanding, 8,500 shares on December 31, 20X2, and December 31, 20X1 85,000 85,000 Additional Information: 1. Exchange rates are as follows: LCU $ 2.01 1.8-1 January 1, 20X1July 31, 20x1 August 1, 20x1-October 31, 20x1 November , 20X1-June 30, 20X2 July 1, 20X2-December 31, 20X2 Average monthly rate for 20X1 Average monthly rate for 20X2 1.51 1.91 1.61

Solution

KINER COMPANY\'S FOREIGN SUBSIDIARY

Remeasurement of Selected Captions into United States Dollars

December 31, 20X2 and December 31, 20X1

NOTES:-

1. Account Receivables :-

* Sales is converted using Average monthly rate for both years and collection amount and actual uncollectabe amount are also converted using same rates but provision is made at year end i.e. at Balance Sheet date, so it is converted at closing rates.

2. Inventories:-

*Purchases is calculated converting June 20X1 amd 20X2 rates, while closing inventory is calculated using year end rates and opening goods for 20X2 is taken from closing goods of 20X1.

3. Property, Plant and Equipment:-

* Fixed Assets are converted using rates on their purchase date while Depreciation is charged at year end so it has been calculated directly using USD amount.

* Depreciation using Straight line Method= (Cost of Asset-Scrap Value)/Number of years of useful life of Asset.

* Since question specifies that full year depreciation will be charged in the year of purchase of asset so full year Depreciation is charged on Equipment purchased during the year 20X2.

* Depreciation for Plant purchased on Jan. 1 20X1-- {(150,000/2.00)-nil}/10 = 7500 USD

* Depreciation for Equipment purchased on july 4, 20X2-- {(40,000/1.5)-nil}/10 = 2667 USD

4. Bonds:-

Issued on Jan. 15, 20X1 == 130,000/2.00 == 65,000USD

Interest paid on july 15, 20X1 == 65,000*.07*6/12== 2275USD

Interest outstanding on Dec.31, 20X1= 65,000*.07*5.5/12== 2085USD

Interest paid on Jan. 15, 20X2== 65000*.07*6/12== 2275USD

Interest paid on july 15, 20X2== 65000*.07*6/12== 2275 USD

Interest outstanding on Dec. 31, 20X2== 65000*.07*5.5/12== 2085USD

* Since no information is given for payment of Debt or Bonds so it has been assumed that it will be paid at maturity in lumpsum amount but if as per formatting of question we consider Long term debt at 110,000 LCU then these will be converted at rate applicable on Dec. 31, 20X2. So amount wil be= 110,000/1.5=73,333

* Since Interest is paid on semiannually basis on July 15, and Jan. 15 every year so it means on Balance Sheet date it is outstanding to pay for 5.5 months.

5. Since no transaction exist with Common Stock so it is converted using closing rates applicable as on Dec. 31, 20X1 and 20X2.

	Balance in LCUs	REFER	Remeasured into US Dollars
December 31, 20X1:
Accounts Receivable (net)	34,000	NOTE 1	17,777
Inventories, at cost	63,000	NOTE 2	37,059
Property, plant, and equipment	158,000	NOTE 3	79,000
Long-term Bonds	130,000	NOTE 4	76,471
Outstanding Interest	4171	NOTE 4	2085
Common Stock	85,000	NOTE 5	50,000
December 31, 20X2:
Accounts Receivable (net)	39,000	NOTE 1	20,745
Inventories, at cost	68,000	NOTE 2	45,333
Property, plant, and equipment	179,000	NOTE 3	95,500
Long-term Bonds	130,000	NOTE 4	86,667
Outstanding Interest	4171	NOTE 4	2085
Common Stock	85,000	NOTE 5	56,667