foreign currency and translation

Assignment Instructions

Conducting business internationally results in having foreign currency transactions. Foreign currencies fluctuate like any other commodity. Foreign currency transactions necessitate translating these transactions and the associated financial statement balances into the reporting currency.

Respond to the following questions. The problems should be solved on the basis of IFRS unless otherwise stated.

Chapter 7 Question

Garden Grove Corporation made a sale to a foreign customer on September 15, Year 1, for 100,000 foreign currency units (FCU). Payment was received on October 15, Year 1. The following exchange rates apply:

Garden Grove Corporation International Sales Exchange Rates


Date U.S. Dollar per FCU
September 15, Year 1 0.40
September 30, Year 1 0.42
October 15, Year 1 0.37

Prepare all journal entries for Garden Grove Corporation in connection with this sale to reflect the impact of foreign currency translation rates, assuming that the company closes its books on September 30 to prepare interim financial statements.

Chapter 8 Question

Simga Company’s Turkish subsidiary reported the following amounts in Turkish lira (TL) on its December 31, Year 4, balance sheet:

Sigma Turkish Subsidiary Balance Sheet


Item Cost
Equipment TL 100,000,000,000
Accumulated depreciation (straight-line) TL 32,000,000,000

Additional information related to the equipment is as follows:

Additional Information About the Equipment


Date Amount Purchased Useful Life US$/TL Exchange Rate
1/1/Y1 TL 60,000,000,000 10 years $0.0000070 = TL 1
1/1/Y3 TL 40,000,000,000 10 years $0.0000020 = TL 1

U.S. dollar exchange rates for the Turkish lira for Year 4 are as follows:

U.S. Dollar Exchange Rates for Turkish Lira for Year 4


Date Exchange Rate
January 1, Year 4 $0.0000010
December 31, Year 4 $0.0000006
  1. Assume that Turkey is a highly inflationary economy. Determine the amounts at which the Turkish subsidiary’s equipment and accumulated depreciation should be reported on Simga Company’s December 31, Year 4, consolidated balance sheet in accordance with U.S. GAAP. Determine the net book value for equipment.
  2. Assume that Turkey is not a highly inflationary economy and that the Turkish subsidiary primarily uses Turkish lira in conducting its operations. Determine the amounts at which the Turkish subsidiary’s equipment and accumulated depreciation should be reported on Simga Company’s December 31, Year 4, consolidated balance sheet in accordance with U.S. GAAP. Determine the net book value for equipment.

Submission Requirements

Your paper should meet the following requirements:

  • Written communication: Written communication is free of errors that detract from the overall message.
  • APA formatting: Resources and citations are formatted according to current APA style and formatting.
  • Font and font size: Times New Roman, 12 point.

 

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