Complete Question :
A Clarke Corporation subsidiary buys marketable equity securities and inventory on April 1, 2017, for 100,000 won each. It pays for both items on June 1, 2017, and they are still on hand at year-end. Inventory is carried at cost under the lower-of-cost-or-net realizable rule. Currency exchange rates for 1 won follow:
January 1, 2017 $0.15 = 1 won
April 1, 2017 0.16 = 1
June 1, 2017 0.17 = 1
December 31, 2015 0.19 = 1
Assume that the won is the subsidiary’s functional currency. What balances does a consolidated balance sheet report as of December 31, 2017?
a. Marketable equity securities = $16,000 and Inventory = $16,000.
b. Marketable equity securities = $17,000 and Inventory = $17,000.
c. Marketable equity securities = $19,000 and Inventory = $16,000.
d. Marketable equity securities = $19,000 and Inventory = $19,000.
Answer:
Step 1 of 4
A business combination is the union of the small business units into one. The new combined unit is known as business combination. This is done for various purposes. A business combination generally increases the efficiency and productivity while reducing the costs.
Consolidated financial statements are those statements in which the financial statements of both the parent and all its subsidiaries are shown as a single entity.
Translated adjustments are those adjustments which are made in the income statement to incorporate the fluctuations in the exchange rates.
Step 2 of 4
The exchange rate is the exchange of the currencies of the two countries. There is a certain fee while changing the currency between two countries.
Translated adjustments are made because of the fluctuations in the different currencies. This generally affects all the aspects in the income statement and the balance sheet like assets, liabilities and equity. If the adjustment is positive then it means that the company is gaining from the currency fluctuations and vice versa.
Step 3 of 4
Since the functional currency is the foreign currency, hence the translation will be done at the current rate method. Hence, all the assets will be translated at the current rate. The current rate in this case is $0.19.
Step 4 of 4
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