Boerkian Co. started 2011 with two assets: Cash of §26,000 (Stickles) and Land t
ID: 2478655 • Letter: B
Question
Boerkian Co. started 2011 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2008. On May 1, 2011, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2011, the company incurred an operating expense of §22,000 that was immediately paid. No other transactions occurred during the year so an average exchange rate is not necessary. Currency exchange rates were as follows:
April 4, 2008 §1 = $.28
January 1, 2011 §1 = $.29
May 1, 2011 §1 = $.30
October 1, 2011 §1 = $.31
December 31, 2011 §1 = $.35
Assume that Boerkian was a foreign subsidiary of a U.S. multinational company and the U.S. dollar is the functional currency. On the December 31, 2011 balance sheet, what was the remeasured value of the Land account?
Explanation / Answer
The Temporal Method (Remeasured Value)
Monetary assets (cash, marketable securities, accounts receivable, inventory) and monetary liabilities (current liabilities and long-term debt) are translated at the current exchange rate (exchange rate at the balance sheet date).
Non-monetary assets (inventory, fixed assets, etc.) and non-monetary liabilities are translated at their historical rate.
Hence Land value = 72000*$0.28
= $20,160