Solved: On December 18 2017 Stephanie Corporation

acquired 100 percent of

On December 18, 2017, Stephanie Corporation acquired 100 percent of a Swiss company for
4.0 million Swiss francs (CHF), which is indicative of book and fair value. At the acquisition date,
the exchange rate was $1.00 = CHF 1. On December 18, 2017, the book and fair values of the
subsidiary's assets and liabilities were:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHF 800,000

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000

Property, plant & equipment . . . . . . . . . . . . . . . . . . . . . . . 4,000,000

Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,100,000)

Stephanie prepares consolidated financial statements on December 31, 2017. By that date, the
Swiss franc has appreciated to $1.10 = CHF 1. Because of the year-end holidays, no
transactions took place prior to consolidation.

a. Determine the translation adjustment to be reported on Stephanie's December 31, 2017,

consolidated balance sheet, assuming that the Swiss franc is the Swiss subsidiary's functional
currency. What is the economic relevance of this translation adjustment?

b. Determine the remeasurement gain or loss to be reported in Stephanie's 2017 consolidated

net income, assuming that the U.S. dollar is the functional currency. What is the economic
relevance of this remeasurement gain or loss?

On December 18 2017 Stephanie Corporation acquired 100 percent of

ANSWER
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