Chapter Ten

1. Chapter Ten Translation of Foreign Currency Financial Statements U.S. Dollar Perspective • functional currency is the U.S. dollar • remeasure foreign currency balances • temporal method of translation • most assets at historical rates • cash, receiv & payables at current rates • gains or losses to net income

2. Local Currency Perspective • functional currency is foreign currency • translate foreign currency balances • current rate method of translation • assets and liabilities at current rates • equity at historical rates • gains or losses recorded to other comprehensive income

3. Current Rate Temporal Rate Amount Rate Amount Sales K 25,000 Salary Exp. (5,000) Deprec. Exp. (600) Misc. Exp. (9,000) Remeas Loss Net Income R/E, 1/1 K 0 Net Income 10,400 Divid. Paid (4,000) K 10,400 K 6,400 R/E, 12/31 Example: 10-31 KQ

4. Assets Cash K 8,000 Current Rate Temporal A/R 9,000 Rate Amount Rate Amount Equipment 3,000 Accum Depr (600) Land 5,000 Total assets Liab & Eqty A/P K 3,000 N/P 5,000 Comm Stock 10,000 R/E 6,400 K 24,400 K 24,400 Cum. trans adj Total l & e KQ

5. Current Rate Temporal Rate Amount Rate Amount Assets FGoods, 1/1 K 1,400 Purchases 28,000 FGoods, 12/31 1,500 CGS K 27,900 Cost of Goods Sold