(Learning Objective 5: Measuring and explaining the foreign currency translation adjustment) Assume that Intel has a subsidiary company based in Japan.
Required
1. Translate into dollars the foreign currency balance sheet of the Japanese subsidiary of Intel.
|
Yen |
|
|
Assets |
300,000,000 |
|
Liabilities |
80,000,000 |
|
Stockholders’ equity: |
20,000,000 |
|
Common stock |
200,000,000 |
|
Retained earnings |
300,000,000 |
When Intel acquired this subsidiary, the Japanese yen was worth $0.0064. The current exchange rate is $0.0083. During the period when the subsidiary earned its income, the average exchange rate was $0.0070 per yen. Before you perform the foreign currency translation calculations, indicate whether Intel has experienced a positive or a negative translation adjustment. State whether the adjustment is a gain or a loss, and show where it is reported in the financial statements.
2. To which company does the foreign currency translation adjustment “belong”? In which company’s financial statements will the translation adjustment be reported?