Reference no: EM132225646
Assignment - Please complete the five questions below and the consolidations exercise in the following Excel tab.
Please answer the following questions below:
Q1) The Company is considering opening a new entity in Ireland. What are some important factors to consider in determining the functional currency of the new entity?
Q2) Brazil is a subsidiary of the US and operates under a cost plus agreement. At the end of every month, Brazil remits an invoice to the US entity in BRL, the functional currency of the Brazilian entity. The US settles the intercompany invoice in the following month. The US entity does not have a BRL bank account and the functional currency of the US entity is USD. Please explain and illustrate through journal entries:
a) How the intercompany invoice should be booked.
b) How the cash settlement entry should be booked.
Q3) For the following accounts please indicate whether the account should be re-measured:
Asset:
- Cash
- AR
- Prepaids
- Investment in Subsidiary (equity)
- PP&E (and accumulated depreciation)
- Intangibles
- Deferred Tax Asset
Liability:
- AP
- Accrued Expenses
- Deferred Tax Liabilities
- Deferred Revenue
Equity:
- Preferred Stock
- Common Stock
Q4) Please explain how you would set up a monthly check to validate that re-measurement FX gain/loss calculated by the accounting system and what is reported on the P&L is correct. How would you perform a similar check for CTA on the Balance Sheet?
Q5) The Company is considering opening a Sales & Marketing subsidiary in Germany with Ireland as the parent company (US is the ultimate parent company). Ireland has a preexisting license agreement in place to exploit IP of the ultimate parent company in all territories outside of the Americas.
Given this limited information:
1. What operational items should be considered as we form this new entity?
2. What agreements, if any, need to put in place to support this new entity?
3. From an accounting systems perspective, what items should be considered?
4. Who would be identified as the key stakeholders for the above process?
5. What other considerations might there be?
Instructions: Please demonstrate your understanding of revaluation and translation under US GAAP by performing the following:
1) Record entries for Entity B and Entity C for foreign exchange unrealized and realized gain/loss related to their intercompany payable positions.
2) Revalue and translate all balance sheet and income statement accounts to USD for consolidations (including CTA amounts).
3) Eliminate intercompany positions and provide ending consolidated financials.
Relevant facts & circumstances:
- For all entities illustrated below, the local currency is the functional currency.
- Foreign Entity A invested capital in Foreign Entity B and C in December 2016.
- Intercompany balances for foreign Entity B and C are with Entity A (i.e. payable to A). The amounts are charged monthly and settled in the following month as part of an intercompany service agreement for services that Entity A performs for Entity B and C. According to the service agreement the amounts are due in USD. The intercompany payables for B and C are entered in their respective GLs and are revalued every month until settled. The initial amounts in USD are $250,500 and $295,150 for Entity B and Entity C, respectively.
- All other foreign currency transactions included in each entity have already been revalued for the month.
- Please refer to the section titled Prior Month I/C positions for the prior month balances in local currency.
Attachment:- Assignment File.rar