Boerkian Co. started 2011 with two assets: Cash of §26,000 (Stickles) and Land t
ID: 2487513 • 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 Boerkian was a foreign subsidiary of a U.S. multinational company and the U.S. dollar was the functional currency of the subsidiary. Prepare a schedule of changes in the net monetary assets of Boerkian for the year 2011 and properly label the resulting gain or loss.
Explanation / Answer
Schedule of changes in the net monetary assets of Boerkian for the year 2011
$ Net monetary asset at 1/1/11 §26,000*$.29= 7,540 Changes in net monetary assets Renders service to customer for cash §36,000*$.30 = 10,800 Operating expenses in cash (§22,000)*.31= (6,820) Net monetary asset at 31/12/11 §40,000 11,520 Net monetary asset at 31/12/11 at current exchange rate §40,000 *35= 14,000 Resulting gain /(Loss) 2,480