On 12/20/20x1, Banana Company, a U.S.-based entity, acquired all of the outstanding common stock of Pooma Industries, which is located in Switzerland. The cost of acquiring Watermellon was 8.2 million...

On 12/20/20x1, Banana Company, a U.S.-based entity, acquired all of the outstanding common stock of Pooma Industries, which is located in Switzerland.

The cost of acquiring Watermellon was 8.2 million Swiss francs.  On the acquisition date, the U.S. dollar/Swiss franc exchange rate was $0.52 = SF1.

The assets and liabilities acquired at 12/20/20x1 were:

At 12/31/20x1, Banana Company prepares its year-end financial statements. By 12/31/20x1, the U.S. dollar/Swiss franc exchange rate was $0.535 = SF1.

For purposes of this problem, assume that after the 12/20/20x1, Watermellon Industries had no additional transactions that changed their financial position.

Required

1. Determine the resulting adjustment to be reported in consolidation, assuming the Swiss Franc is Watermellon Industries’ functional currency. Please show your work.  Additionally, explain how the company would account for/report the adjustment in their financial statements.


2. Determine the resulting adjustment to be reported in consolidation, assuming the U.S. dollar is Watermellon Industries’ functional currency.Please show your work.  Additionally, explain how the company would account for/report the adjustment in their financial statements.