Activity 3.
Direction: Provide what is asked. Show your solution.
Use the following information for the next three questions:
Entity A has just started its operations on January 1, 20x1. On this date, Entity A’s equity consisted of ₱2M share capital, which were
issued also on this date. Entity A’s functional currency is the Philippine peso (₱). However, it wishes to present its 20x1 financial
statements into Japanese yen (¥). The following information was gathered on December 31, 20x1, after a year of operations.
Total assets ₱10M
Total liabilities ₱5M
Share capital 2M
Retained earnings 3M
Total liabilities and equity ₱10M
Income ₱7M
Expenses (4M)
Profit ₱3M
Relevant exchange rates:
January 1, 20x1 (historical rate for the share capital) ₱1: ¥2
Average rate ₱1: ¥3
December 31, 20x1 (closing rate) ₱1: ¥4
1. How much is the translated total assets?________________
2. How much is the translated total equity? ________________
3. How much is the translated profit or loss?________________
Use the following information for the next six questions:
During July 20x6, Precious Corporation had the following transactions with foreign businesses:
Date Nature of Transaction Billing Currency Exchange rate (Direct)
Vendor A:
7/1/x6 Imported merchandise costing 100,000 rupees
from Pakistan wholesaler Rupee P 0.82
7/10/x6 Paid 40% of amount owed 0.83
7/31/x6 Paid remaining amount owed 0.78
Customer A
7/15/x6 Sold merchandise for 50,000 pound to Syrian
Wholesaler Syrian Pound P 0.95
7/20/x6 Received 20% payment 0.90
7/30/x6 Received remaining amount owed 0.91
4. What is the capitalized cost of inventory purchase from the Pakistan wholesaler? _________________
5. What is the foreign exchange gain or loss on July 10, 20x6 transaction arising from the Pakistan wholesaler? ________________
6. What is the foreign exchange gain or loss on July 31, 20x6 transaction arising from the Pakistan wholesaler? ________________
7. What is the reportable sales amount in the income statement in 20x6? ________________
8. What is the foreign exchange gain or loss on July 20, 20x6 transaction arising from the Syrian wholesaler? _______________
9. What is the foreign exchange gain or loss on July 30, 20x6 transaction arising from the Syrian wholesaler? _____________
10. Hunt Co. purchased merchandise for £300,000 from a vendor in London on November 30, 20x6. Payment in British pounds was
due on January 30, 20x7. The exchange rates to purchase one pound were as follow:
November 30, 20x6 December 31, 20x6 January 30, 20x7
Spot-rate P 71.11 P 71.00 P 71.50
30-day rate 75.00 73.00 72.00
60-day rate 74.50 75.00 75.12
In its income statement, what amount should Hunt report as foreign exchange transaction gain (loss)? ________________
11. On July 1, 20x6, Magnolia Company purchases 1,000 pounds of chocolate for 50,000 foreign currencies (FCS), payable in 60 days.
On July 1, a FC is worth P 27.29; by August 30, the day of payment, the FC is worth P 27.00. The 60-day forward rate on July 1 is 1 FC
= P 28.00. Magnolia Company should record the cost of the chocolate as: _________________
12. The accounts of Ilocano International, a Philippine corporation, show P 81,300 accounts receivable and P 38,900 accounts payable
at December 31, 20x6, before adjusting entries are made. In analyzing the balances reveals the following:
Accounts receivable:
Accounts receivable in Philippine pesos P 28,500
Receivable denominated in 20,000 foreign currency 1 11,800
Receivable denominated in 25,000 foreign currency 2 41,000
Total P 81,300
Accounts payable:
Payable denominated in Philippine pesos P 6,850
Payable denominated in 10,000 foreign currency 3 7,600
Payable denominated in 15,000 foreign currency 2 24,450
Total P 38,900
Current exchange rates for foreign currency 1, foreign currency 3, and foreign currency 3 at December 31, 20x6 are P 0.66, P
1.65 and P 0.70, respectively. Determine the net exchange gain or loss that should be reflected in Ilocano’s income statement
for 20x6 from year-end exchange adjustments. ____________________
Use the following information for the next 10 questions.
A Philippine company a foreign subsidiary on January 1, 20x4. The subsidiary’s trial balances for January 1 and December 31, 20x4 on
presented below, in FCs (foreign currencies)
January 1, 20x4 December 31, 20x4
Balances [Dr. (Cr.)] balances [Dr. (Cr.)]
Cash receivables FC 37,000 FC 20,000
Plant & equipment, net 400,000 435,000
Liabilities (172,000) (165,000)
Capital stock (115,000) (115,000)
Retained earnings, January 1 (150,000) (150,000)
Dividends 10,000
Sales revenue (800,000)
Operating expenses 765,000
New plant & equipment of FC 85,000 was acquired in 20x4. Operating expense include FC 50,000 depreciation on plant & equipment,
of which FC 5,000 is related to plant & equipment purchased in 20x4.
Exchange rates (P/FC) are as follows:
January 1, 20x4 P 1.45
Plant & equipment acquired 1.40
Average for 20x4 1.30
Dividends declared 1.26
December 31, 20x4 1.25
For questions 13- 17, assume that the subsidiary’s functional currency is the FC.
13. What is the transaction gain or loss for 20x4? ________________
14. What are translated total assets for the subsidiary at December 31, 20x4? _____________
15. What are translated 20x4 operating expenses for the subsidiary? ___________
16. What is the translated 20x4 net income for the subsidiary? _________
17. What is the subsidiary’s translated December 31, 20x4 retained earnings balance? _____________
For questions 18 – 22, assume that the subsidiary’s functional currency is the Philippine peso
18. What is the remeasurement gain or loss for 20x4? ________________
19. What are remeasured total assets for the subsidiary at December 31, 20x4? _____________
20. What are remeasured 20x4 operating expenses for the subsidiary? _____________
21. What is remeasured 20x4 net income for the subsidiary? _______________
22. What is the subsidiary’s remeasured December 31, 20x4 retained earnings balance? ______________
