Question

Certain balance sheet accounts of a foreign subsidiary of Orchid Company have been stated in U.S. dollars as follows:

Stated at Current Rates Historical Rates

Accounts receivable, current $ 215,000 $ 235,000 '

Accounts receivable, long term 118,000 125,000

Land 59,000 63,000

Patents 89,000 94,000

Total 481,000 517,000

1. This subsidiary’s functional currency is the U.S. dollar. What total should Orchid’s balance sheet include for the preceding items?

2. This subsidiary’s functional currency is foreign currency. What total should Orchid’s balance sheet include for the preceding items?

Answer 1

1. $490,000

2. $481,000

Step-by-step explanation:

1. The computation of the total amount which is included in the balance sheet is shown below:

= Accounts receivable + Accounts receivable, long term + Land + Patents

= $215,000 + $118,000 + $63,000 + $94,000

= $490,000

In this the land and patents are recorded in the historical rates

2. The computation of the total amount which is included in the balance sheet is shown below:

= Accounts receivable + Accounts receivable, long term + Land + Patents

= $215,000 + $118,000 + $59,000 + $89,000

= $481,000

In this all items are recorded in the current rates