Question

Hewell Co. started 2020 with two assets: Cash of E200,000 (Euros) and Land that originally cost E252,000 when acquired on April 4, 2015. On April 1, 2020, the company rendered services to a customer for E75,000, an amount immediately paid in cash. On October 1, 2020, the company incurred an operating expense of E50,000 that was immediately paid. On October 1, 2020, they also declared and paid a dividend of E100,000 to their parent company. No other transactions occurred during the year, so an average exchange rate is not necessary. Currency exchange rates were as follows:

Exchange Rate Chart
April 4, 2015 §1 = $0.28
January 1, 2018 §1 = $0.29
May 1, 2018 §1 = $0.30
October 1, 2018 §1 = $0.31
December 31, 2018 §1 = $0.35

Assume Boerkian was a foreign subsidiary of a U.S. multinational company and the U.S. dollar was the functional currency of the subsidiary. Prepare a schedule of changes in the net monetary assets of Boerkian for the year 2018 and properly label the resulting gain or loss.

Answer 1

Answer:

Please find the complete question and its solution file in the attachment.

Explanation:

Timing of shifts in Boerkian's net money assets

Date         Particulars               Stickles    Exchange Rate     Dollars

1-Jan  Assets $(26000 + 72000)$         $98000 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.29\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 28420$

1-May  Service Revenue           $36000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.30\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 10800$

1-Oct  Operating Expenses   $(22000) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.31\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 6820$

31-Dec  Net Assets $112000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 32400$

31-Dec Net Assets at Current Exchange Rate on Dec.31                                             $112000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.35\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 39200$

31-Dec  Gain$(\ 39200 - \ 32400)$                                                $6800$

The profit is $6,800 for the subsidiary. The exchange rate is higher on 31 December.