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A Owns Majority of The Outstanding Ordinary Shares

Entity B, operating in the US with the US dollar as its functional currency, is a majority-owned subsidiary of Entity A, whose presentation currency is the Philippine peso. In 2020, Entity B reported $1,000 net income and $200 in dividends. Its retained earnings translated to PHP300,000 at the end of 2019. Based on the exchange rate movements between 2019 and 2020, the translation gain as other comprehensive income for 2020 is $40,400, and the cumulative translation credit in the statement of financial position at the end of 2020 is $26,800.

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A Owns Majority of The Outstanding Ordinary Shares

Entity B, operating in the US with the US dollar as its functional currency, is a majority-owned subsidiary of Entity A, whose presentation currency is the Philippine peso. In 2020, Entity B reported $1,000 net income and $200 in dividends. Its retained earnings translated to PHP300,000 at the end of 2019. Based on the exchange rate movements between 2019 and 2020, the translation gain as other comprehensive income for 2020 is $40,400, and the cumulative translation credit in the statement of financial position at the end of 2020 is $26,800.

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Entity A owns majority of the outstanding ordinary shares of Entity B which is operating in

United States of America wherein the functional currency is the USA $. However, the
presentation currency of Entity B is the Philippine Peso because that is the presentation currency
of Entity A. For the year ended December 31, 2020, Entity B presented its Statement of
Financial Position in its functional currency of USA $:
Current assets $10,000 Current liabilities $10,000
Noncurrent assets 40,000 Noncurrent liabilities 20,000
Ordinary share capital 5,000
Preference share capital 8,000
Retained earnings 7,000
Total Assets $50,000 Total Liabilities and shareholders $50,000

 The ordinary shares are issued on January 1, 2019 while the preference shares are issued on
July 1, 2019.
 B reported $1,000 net income during 2020 and declared dividends in the amount of $200 on
December 1, 2020.
 The translated amount of retained earnings on December 31, 2019 is P300,000.

The following direct exchange rates are provided:

January 1, 2019 P40


July 1, 2019 42
December 31, 2019 43
December 1, 2020 41
December 31, 2020 45
Average rate 2020 44

What amount of translation gain as component of other comprehensive income should be


presented in the of statement of comprehensive income for the year ended December 31, 2020?
38,600
39,200
40,400
41,800

What is the cumulative translation credit that should to be presented in the statement of financial
position on December 31, 2020?
25,400
28,200
26,800
24,600
On September 1, 2018, Cano Company, a US corporation, sold merchandise to a foreign firm for
250,000Botswana pula. Terms of the sale require payment in pula on February 1, 2019.. On
September 1, 2018, the spot exchange rate was $.20 per pula. At December 31, 2018, Cano’s
year-end, the spot rate was $.19, but the rate increased to $.22 by February 1, 2019, when
payment was received. How much should Cano report as foreign exchange transaction gain or
loss as part of 2019 income?
A. $ 0
B. $2,500 loss
C. $5,000 gain
D. $7,500 gain

Hunt Company purchased merchandise for £300,000 from a vendor in London on November 30,
2018. Payment in British pounds was due on January 30, 2019. The exchange rates to purchase
one pound were as follows:

November 30, 2018 December 31, 2018

Spot-rate $1.65 $1.62


30-day rate 1.64 1.59
60-day rate 1.63 1.56

In the income statement, what amount should Hunt report as foreign exchange transaction gain
as part of net income?
A. $12,000
B. $ 9,000
C. $ 6,000
D. $ 0

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