Parent Company Acquired a Subsidiary in Germany in 2012

question 61

Essay

Parent Company acquired a subsidiary in Germany in 2012. The subsidiary's balance sheet is stated in euros. When Parent Company acquired the subsidiary in 2012, a euro was worth $1.35. When the subsidiary earned its income during 2012-2017, the average exchange rate was $1.32. On December 31, 2017, a euro is worth $1.20.
At December 31, 2017, the subsidiary's assets were 1,000,000 euros; the liabilities were 500,000 euros, common stock was 400,000 euros and retained earnings was 100,000 euros.
Required:
Translate the subsidiary's balance sheet into dollars.

Grasp the concept of risk in investment and its implications on expected returns.

Understand the conditions and documentation required for hedge accounting under U.S. GAAP.

Analyze the impact of foreign currency fluctuations on U.S. companies involved in international transactions.

Comprehend the accounting treatments for forward contracts and options as hedges of foreign currency risks.

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Definitions:

365-Day Year

A calendar year approach used in financial calculations, assuming the year has exactly 365 days for the purpose of interest computation.

Hair Salon

A business establishment offering services related to hair treatment, such as cutting, coloring, and styling.

Exact Interest

interest calculation based on a 365-day year or the actual number of days in a partial year, offering more precision than ordinary interest methods.

365-Day Year

a calculation basis for interest that uses the actual number of days in a year, providing a more precise interest calculation compared to the ordinary interest method.