BA 118.

2 Advanced Accounting II
Second Semester, A.Y. 2021-2022
Illustrative Examples – Foreign Exchange Translation (Foreign to Functional)

Black Panther Corp. (BPC) is a subsidiary of a US-based company, The Avengers. BPC is domiciled in the hidden
and technologically advanced kingdom of Wakanda. Their currency is Wakandan Vibranium Dollar (WVD).

The following information refers to BPC’s operations in Wakanda:

1. The US Dollar is determined to be the functional currency. BPC’s books are in WVD.
2. The parent company acquired BPC on January 1, 20X1.
3. BPC began operations on January 1, 20X0.
4. Sales to parent company are billed in WVD, and all receivables from parent have been collected except
for the amount shown in the account “Due from Parent”. All other sales are billed in WVD as well.
5. Inventory is recorded at its market value of WVD30,000. Its historical cost is WVD32,000. The
historical cost of sales is based on first-in, first-out (FIFO) cost flow assumption. Ending inventory
consists of the following:
a. WVD10,000 acquired on October 1, 20X1
b. WVD22,000 acquired on November 1, 20X1
6. The prepaid insurance represents prepayments that were acquired on October 1, 20X1.
7. The depreciable assets, with 10-year useful lives, were acquired as follows:
a. WVD80,000 acquired on January 1, 20X0*
b. WVD60,000 acquired on July 1, 20X1

*WVD20,000 of these assets were sold on July 1, 20X1 for US$19,760.

8. The cost of sales consists of the following purchases:
a. WVD20,000 acquired on December 1, 20X0
b. WVD60,000 acquired on March 1, 20X1
c. WVD80,000 acquired on July 1, 20X1
d. WVD20,000 acquired on October 1, 20X1
9. The “Other expenses” account includes WVD3,000 of insurance expense that was originally prepaid on
October 1, 20X1. The balance of other expenses was incurred uniformly throughout the year.
10. The land and the related mortgage were acquired on March 1, 20X1.
11. The relevant exchange rates were as follows (WVD1.00 = $XX):
January 1, 20X0 $0.980 July 1, 20X1 $1.040
July 1, 20X0 $1.010 October 1, 20X1 $1.045
December 1, 20X0 $0.990 November 1, 20X1 $1.043
January 1, 20X1 $1.000 December 31, 20X1 $1.050
March 1, 20X1 $1.015 20X1 average $1.030
 Account Title In WVD Relevant Exchange Rate In USD
Cash 10,000
Accounts receivable 21,000
Allowance for doubtful accounts (1,000)
Due from Parent 14,000
Inventory (at market) 30,000
Prepaid insurance 3,000
Land 18,000
Depreciable assets 120,000
Accumulated depreciation (15,000)
Cost of goods sold 180,000
Depreciation expense 10,000
Income tax expense 30,000
Other expenses 23,000
Total 443,000

Accounts payable 20,000

Taxes payable 30,000
Accrued interest payable 1,000
Mortgage payable – land 10,000
Common stock 80,000
Retained earnings 20,000
Sales 280,000
Gain on sale of depreciable assets 2,000
Total 443,000

Required: Prepare the USD financial statements of Black Panther Co.