Question: 1. A parent company needs to determine the appropriate method for translating the financial statements of a foreign subsidiary. To determine the appropriate translation method under both SFAS 52 and IAS 21, the functional currency of a foreign subsidiary must be identified. The functional currency is the primary currency of the foreign entity's operating environment. It can be either the parent's reporting currency or a foreign currency (generally the local currency). The functional currency orientation results in the following rule. Please fill in the blanks re translation method and the translation adjustments.
Functional Currency Translation Method Translation Adjustment
Parent's currency temporal method ____________________
Foreign currency _________________ ____________________
LTV acquires 80% of the voting shares of Boeing and consolidated its accounts by restating assets and liabilities of the subsidiary at fair value on the date the shares were acquired. What method of accounting for the business combination is LTV Corporation using under US GAAP? Would the method be different under IFRS?
1. LTV is located in the U.S., but it has subsidiaries in England. When the English pound appreciates relative to the U.S. dollar, what is the direction of the translation adjustment to consolidate LTV's financial statements?
A) When there is net asset exposure, the translation adjustment will be positive.
B) When there is net liability exposure, the translation adjustment will be positive.
C) There will be no adjustment necessary unless the difference is realized.
D) The direction of the adjustment is indeterminate.
1. Aston, a British subsidiary of LTV, a U.S. company, showed cost of goods sold on its income statement for the year ended December 31, 2016.
Inventory, 1/1/16 £ 100,000
Purchases 900,000
Cost of Goods Available for Sale 1,000,000
Inventory, 12/31/16 200,000
Cost of Goods Sold £ 800,000
Exchange rates/£
December 31, 2016 $0.522
December 31, 2015 $0.560
2016 average $0.547
What amount should be used to consolidate Aston's cost of goods sold into LTV's income statement under the current rate method? Please show your work.