Assume a Foreign Subsidiary Is Formed on January 1, Year

question 3

Essay

Assume a foreign subsidiary is formed on January 1, Year 1 when the rate of exchange is 1 foreign currency (FC) = $1.00.On June 30, Year 1, the rate of exchange was 1 FC = $1.25 and on December 31, the rate of exchange was 1 FC = $1.35.The first year resulted in the following transactions:
January 1: The foreign subsidiary received $500,000 equity investment in dollars from the parent company in exchange for common stock.
January 1: The foreign subsidiary purchased machinery for $300,000 and inventory $200,000 for cash.
June 30: The foreign subsidiary sold 50% of the inventory on account for $150,000.
December 31: The receivable from the sale of inventory was fully collected.
Instructions: Make the necessary journal entries to record for the U.S.parent company in U.S.dollars.

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Definitions:

Stated Value

A value that is assigned to a share of stock by the company's board of directors, not based on market value, but used for accounting and reporting purposes.

Excess of Par

The amount by which a security's sale or issue price exceeds its par value.

Treasury Shares

Shares released to the public and afterward reclaimed by the issuer, cutting down the overall count of stock available on the open market.

Journalize

The process of recording transactions in an accounting journal.