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Indicate whether the amount is a gain or loss

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Reference no: EM131119153

Foreign Sub is a wholly owned subsidiary of U.S. Domestic Corporation. U.S. Domestic Corporation acquired the subsidiary several years ago. The financial statements for Foreign Sub for 2010 in its own currency appear in Exhibit 7.37. The exchange rates between the U.S. dollar and the foreign currency of the subsidiary were as follows:

December 31, 2009 ......... $10:1FC

Average, 2009 ........... $ 8:1FC

December 31, 2010 .......... $ 6:1FC

On January 1, 2010, Foreign Sub issued FC100 of long-term debt and FC100 of common stock in the acquisition of land costing FC200. Operating activities occurred evenly over the year.

Required

a. Assume that the currency of Foreign Sub is the functional currency. Compute the change in the cumulative translation adjustment for 2010. Indicate whether the change increases or decreases shareholders' equity.

b. Assume that the U.S. dollar is the functional currency. Compute the amount of the translation gain or loss for 2010. Indicate whether the amount is a gain or loss.

Reference no: EM131119153

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