Question 5

On January 1, 20X1, Popular Creek Corporation organized RoadTime Company as a subsidiary in Switzerland with an initial investment cost of Swiss francs (SFr) 60,000. RoadTime’s December 31, 20X1,

Trial balance in SFr is as follows:

Debit (SFr)                                             Credit (SFr)

Cash                                                         7000

Accounts Receivable                                 20000

Receivable from Popular Creek                 5000

Inventory                                                 25000

Plant and Equipment                                 100000

Accumulated Depreciation                         10000

Accounts Payable                                         12000

Bonds Payable                                         50000

Common Stock                                         60000

Sales                                                         150000

Cost of goods sold                                 70000

Depreciation Expense                                 10000

Operating Expense                                 30000

Dividend paid                                         15000

Total                                                         SFr 282,000     SFr 282,000

Additional Information

1. The receivable from Popular Creek is denominated in Swiss francs. Popular Creek’s books show a $4,000 payable to RoadTime.

2. Purchases of inventory goods are made evenly during the year. Items in the ending inventory were purchased November 1.

3. Equipment is depreciated by the straight-line method with a 10-year life and no residual value. A full year’s depreciation is taken in the year of acquisition. The equipment was acquired on March 1.

4. The dividends were declared and paid on November 1.

5. Exchange rates were as follows:

January 1                         1SFr=$.73

March 1                                 1SFr=$.74

November 1                         1SFr=$.77

December 31                 1SFr=$.80

20X1 Average                 1SFr=$.75

6. The Swiss franc is the functional currency.

Required

(a) Prepare a schedule translating the December 31, 20X1, trial balance from Swiss francs to dollars.

(b) Where is the translation adjustment reported on Popular Creek’s consolidated financial statements and its foreign subsidiary?