BA 118.

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

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. BPC began operations on January 1, 20X0. On January 1, 20X1, when net assets totalled WVD100,000,
90% of BPC was acquired by the parent company.
2. BPC’s functional currency is the WVD. It maintains its records in the functional currency.
3. 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. The level of sales and purchases was constant over the year. None of the inventory purchased
from BPC remains in the parent’s ending inventory.
4. The relevant exchange rates were as follows (WVD1.00 = $XX):
January 1, 20X0 $0.980 December 31, 20X1 $1.050
January 1, 20X1 $1.000 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:
1. Prepare the USD financial statements of Black Panther Co.
2. Show the computation of Foreign Currency Translation Adjustment (FCTA).