A Canadian company owns a self-sustaining subsidiary (i.e., the functional currency of the foreign operation is different than the parent) in Spain, where the currency is the euro (€). On January 1, Year 5, the subsidiary had €500,000 in cash and no other assets or liabilities. On January 1, the subsidiary used €100,000 to purchase equipment. On April 1, the subsidiary used cash to purchase merchandise inventory costing €80,000. This merchandise was sold on May 29 for €120,000 in cash. On November 29, the subsidiary paid cash dividends in the amount of €15,000, and on December 31 it recorded depreciation on the equipment for the year of €20,000. The appropriate exchange rates were as follows:
January 1, Year 5 €1 = $1.48
April 1, Year 5 €1 = $1.51
May 29, Year 5 €1 = $1.53
November 29, Year 5 €1 = $1.54
December 31, Year 5 €1 = $1.56
Average for Year 5 €1 = $1.52
What is the amount of the Year 5 translation adjustment to be included in accumulated foreign exchange adjustments in the shareholders’ equity section of the translated statement of financial position?
a. $40,100 loss.
b. $40,100 gain.
c. $40,500 loss.
d. $40,500 gain.
