Exam 11: Translation and Consolidation of Foreign Operations

On December 31, 2019, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the outstanding shares of Wilsen Corp of the United States. Wilsen's fair values approximated its book values on that date. Wilsen's comparative balance sheets for 2019 and 2020 are shown below: Balance Sheet as at December 31 (in U.S. Dollars) Current Monetary Assets \ 8,000,000 \ 7,500,000 Inventory \ 2,000,000 \ 3,000,000 Plant and Equipment (Net) \ 1,500,000 \ 1,800,000 Total Assets \ 11,500,000 \ 12,300,000 Current Liabilities \ 1,100,000 \ 2,300,000 Bonds Payable (due Dec 31,2026) \ 5,000,000 \ 5,000,000 Common Shares \ 4,000,000 \ 4,000,000 Retained Earnings \ 1,400,000 \ 1,000,000 Total Liabilities and Equity \ 11,500,000 \ 12,300,000 Income Statement for the Year ended December 31, 2020 Sales \ 5,200,000 Inventory, January 1,2020 \ 3,000,000 Purchases \ 3,000,000 Inventory, December 31,2020 (\ 2,000,000) Depreciation Expense \ 300,000 Other Expenses \ 400,000 \ 4,700,000 Net Income \ 500,000 Other Information: Exchange Rates: December 31,2019: US \ 1= CDN \ 1.1850 September 30, 2020: US \ 1= CDN \ 1.1975 December 31,2020: US \ 1= CDN \ 1.20 Average for 2020: US \ 1= CDN \ 1.19 Wilsen paid US$100,000 in dividends on September 30, 2020. The inventories on hand at the end of 2020 were purchased when the exchange rate was US$1 = CDN$1.195. Sales, purchases and other expenses occurred evenly throughout the year. Translate Wilsen's December 31, 2020 Statement of Retained Earnings if Wilsen's functional currency was the U.S. dollar (i.e., the functional currency of the foreign subsidiary is different than the parent's functional currency).

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date. Exchange rates for the period from January 1, 2018 to December 31, 2020 were: Tanuary 1,2018 US \ 1.00=CDN\ 1.05 Tanuary 1,2019 US\ 1.00=CDN\ 1.06 Average for 2019 US \ 1.00= CDN \ 1.0625 December 31,2019 US \ 1.00= CDN \ 1.065 March 1,2020 US \ 1.00= CDN \ 1.068 Average for 2020 US\ 1.00= CDN \ 1.07 December 31,2020 US \ 1.00= CDN \ 1.075 If Maker's functional currency is the same as the parent's, what amount will be shown for capital assets (net) on its translated Canadian dollar financial statements as at December 31, 2019?

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: Tanuary 1,2020: US \ 1= CDN \ 0.815 December 31,2020: US \ 1= CDN \ 0.8175 Average for 2020: US \ 1= CDN \ 0.825 Date of Purchase of Inventory on Hand: US \ 1= CDN \ 0.83 Date Dividends were declared: US \ 1= CDN \ 0.8125 US1 financial results for 2020 were as follows: US1 Financial Statements At December 31, 2020 (in U.S. dollars) Income Statement: Sales \ 5,000,000 Cost of Sales \ 3,500,000 Depreciation Expense \ 150,000 Bond Interest Expense \ 100,000 Other Expense \ 750,000 Net Income \ 500,000 Statement of Retained Earnings: January 1, 2020: \ 400,000 Net Income \ 500,000 Dividends \ 100,000) December 31,2020: \ 800,000 Balance Sheet Cash \ 1,200,000 Accounts Receivable \ 1,900,000 Inventory \ 700,000(\ 500,000 January 1, 2020) Plant and Equipment (net) \ 400,000 Current Liabilities \ 4,200,000 Bonds Payable \ 2,000,000 Common Shares \ 1,000,000 Retained Earnings \ 800,000 \ 4,200,000 Sales, purchases, bond interest, and other expenses occurred evenly throughout the year. US1 is considered to be a foreign subsidiary that has a different functional currency than ABC Inc.'s functional currency. What is the amount of the gain or loss arising from translation?

Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2018, when the company was established. These assets were being amortized over 10 years on a straight-line basis, with no significant residual value expected. On January 1, 2019, Holdings Inc., a Canadian company with no capital assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition differential was allocated to the capital assets, which had eight years remaining economic life on the acquisition date. On March 1, 2020, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of eight years from that date. Exchange rates for the period from January 1, 2018 to December 31, 2020 were: Tanuary 1,2018 US \ 1.00=CDN\ 1.05 Tanuary 1,2019 US \ 1.00= CDN \ 1.06 Average for 2019 US \ 1.00= CDN \ 1.0625 December 31,2019 US \ 1.00= CDN \ 1.065 March 1,2020 US \ 1.00= CDN \ 1.068 Average for 2020 US \ 1.00= CDN \ 1.07 December 31,2020 US \ 1.00= CDN \ 1.075 If Maker is considered to be a foreign subsidiary where its functional currency is the U.S. dollar (i.e., different than the parent's functional currency), what is the amount of the exchange gain or loss resulting from the translation of the changes to the acquisition differential for 2019?

Which of the following statements is correct?

Which of the following statements is correct?

Which of the following statements is correct?

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000. Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars): Current Monetary Assets \ 50,000 Inventory \ 40,000 Plant and Equipment \ 25,000 Total Assets \ 115,000 Current Liabilities \ 45,000 Bonds Payable (maturity: January 1,2026) \ 20,000 Common Shares \ 30,000 Retained Earnings \ 20,000 Total Liabilities and Equity \ 115,000 The following exchange rates were in effect during 2020: January 1, 2020: US \ 1= CDN \ 1.3250 Average for 2020: US \ 1= CDN \ 1.3350 Date when Ending Inventory Purchased: US \ 1= CDN \ 1.34 December 31,2020: US \ 1= CDN \ 1.35 Sales, purchases and other expenses occurred evenly throughout the year. Dividends declared and paid December 31, 2020.

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: Tanuary 1,2020: US \ 1= CDN \ 0.815 December 31,2020: US \ 1= CDN \ 0.8175 Average for 2020: US \ 1= CDN \ 0.825 Date of Purchase of Inventory on Hand: US \ 1= CDN \ 0.83 Date Dividends were declared: US \ 1= CDN \ 0.8125 US1 financial results for 2020 were as follows: US1 Financial Statements At December 31, 2020 (in U.S. dollars) Income Statement: Sales \ 5,000,000 Cost of Sales \ 3,500,000 Depreciation Expense \ 150,000 Bond Interest Expense \ 100,000 Other Expense \ 750,000 Net Income \ 500,000 Statement of Retained Earnings: January 1, 2020: \ 400,000 Net Income \ 500,000 Dividends \ 100,000) December 31,2020: \ 800,000 Balance Sheet Cash \ 1,200,000 Accounts Receivable \ 1,900,000 Inventory \ 700,000(\ 500,000 January 1, 2020) Plant and Equipment (net) \ 400,000 Current Liabilities \ 4,200,000 Bonds Payable \ 2,000,000 Common Shares \ 1,000,000 Retained Earnings \ 800,000 \ 4,200,000 Sales, purchases, bond interest, and other expenses occurred evenly throughout the year. US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency. Which of the following rates would be used to translate the company's beginning retained earnings?

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000. Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars): Current Monetary Assets \ 50,000 Inventory \ 40,000 Plant and Equipment \ 25,000 Total Assets \ 115,000 Current Liabilities \ 45,000 Bonds Payable (maturity: January 1,2026) \ 20,000 Common Shares \ 30,000 Retained Earnings \ 20,000 Total Liabilities and Equity \ 115,000 The following exchange rates were in effect during 2020: January 1, 2020: US \ 1= CDN \ 1.3250 Average for 2020: US \ 1= CDN \ 1.3350 Date when Ending Inventory Purchased: US \ 1= CDN \ 1.34 December 31,2020: US \ 1= CDN \ 1.35 Sales, purchases and other expenses occurred evenly throughout the year. Dividends declared and paid December 31, 2020. The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below: Balance Sheets Larmer Martin Current Monetary Assets \ 42,050 \ 65,000 Inventory \ 60,000 \ 50,000 Plant and Equipment \ 23,500 \ 20,000 Investment in Martin (at Cost) \ 66,250 Assets \ 191,800 \ 135,000 Current Liabilities \ 50,000 \ 48,000 Bonds Payable (maturity: January 1,2026 ) \ 35,000 \ 20,000 Common Shares \ 60,000 \ 30,000 Retained Earnings \ 30,000 \ 20,000 Net Income \ 28,800 \ 27,000 Dividends (\ 12,000) (\ 10,000) Liabilities and Equity \ 191,800 \ 135,000 Income Statements Larmer Martin Sales \ 80,000 \ 50,000 Dividend Income \ 10,800 Cost of Sales (\ 40,000) (\ 15,000) Depreciation (\ 10,000) (\ 5,000) Other expenses (\ 12,000) (\ 3,000) Net Income \ 28,800 \ 27,000 Prepare Larmer's December 31, 2020 Consolidated Balance Sheet if Martin's functional currency was the Canadian dollar (i.e. the same functional currency as the parent).

A foreign subsidiary has earned income evenly over the year and it has paid its income taxes for the year in two instalments, half on June 30 and half on December 31. Assuming the foreign subsidiary's functional currency is the same as the parent's functional currency, what rate(s) should be used to translate the foreign subsidiary's income tax expense into Canadian dollars when preparing translated financial statements for the year ended December 31?

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: Tanuary 1,2020: US \ 1= CDN \ 0.815 December 31,2020: US \ 1= CDN \ 0.8175 Average for 2020: US \ 1= CDN \ 0.825 Date of Purchase of Inventory on Hand: US \ 1= CDN \ 0.83 Date Dividends were declared: US \ 1= CDN \ 0.8125 US1 financial results for 2020 were as follows: US1 Financial Statements At December 31, 2020 (in U.S. dollars) Income Statement: Sales \ 5,000,000 Cost of Sales \ 3,500,000 Depreciation Expense \ 150,000 Bond Interest Expense \ 100,000 Other Expense \ 750,000 Net Income \ 500,000 Statement of Retained Earnings: January 1, 2020: \ 400,000 Net Income \ 500,000 Dividends \ 100,000) December 31,2020: \ 800,000 Balance Sheet Cash \ 1,200,000 Accounts Receivable \ 1,900,000 Inventory \ 700,000(\ 500,000 January 1, 2020) Plant and Equipment (net) \ 400,000 Current Liabilities \ 4,200,000 Bonds Payable \ 2,000,000 Common Shares \ 1,000,000 Retained Earnings \ 800,000 \ 4,200,000 Sales, purchases, bond interest, and other expenses occurred evenly throughout the year. US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency. Assuming the net monetary assets where US$350,000 on January 1, 2020, what is the amount of the 2020 exchange gain (loss) that would result from the translation of US1's financial statements?

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000. Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars): Current Monetary Assets \ 50,000 Inventory \ 40,000 Plant and Equipment \ 25,000 Total Assets \ 115,000 Current Liabilities \ 45,000 Bonds Payable (maturity: January 1,2026) \ 20,000 Common Shares \ 30,000 Retained Earnings \ 20,000 Total Liabilities and Equity \ 115,000 The following exchange rates were in effect during 2020: Tanuary 1, 2020: US \1 =CDN \ 1.3250 Average for 2020: US \ 1= CDN \ 1.3350 Date when Ending Inventory Purchased: US \ 1= CDN \ 1.34 December 31,2020: US \ 1= CDN \ 1.35 Sales, purchases and other expenses occurred evenly throughout the year. Dividends declared and paid December 31, 2020.

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: Tanuary 1,2020: US \ 1= CDN \ 0.815 December 31,2020: US \ 1= CDN \ 0.8175 Average for 2020: US \ 1= CDN \ 0.825 Date of Purchase of Inventory on Hand: US \ 1= CDN \ 0.83 Date Dividends were declared: US \ 1= CDN \ 0.8125 US1 financial results for 2020 were as follows: US1 Financial Statements At December 31, 2020 (in U.S. dollars) Income Statement: Sales \ 5,000,000 Cost of Sales \ 3,500,000 Depreciation Expense \ 150,000 Bond Interest Expense \ 100,000 Other Expense \ 750,000 Net Income \ 500,000 Statement of Retained Earnings: January 1, 2020: \ 400,000 Net Income \ 500,000 Dividends \ 100,000) December 31,2020: \ 800,000 Balance Sheet Cash \ 1,200,000 Accounts Receivable \ 1,900,000 Inventory \ 700,000(\ 500,000 January 1, 2020) Plant and Equipment (net) \ 400,000 Current Liabilities \ 4,200,000 Bonds Payable \ 2,000,000 Common Shares \ 1,000,000 Retained Earnings \ 800,000 \ 4,200,000 Sales, purchases, bond interest, and other expenses occurred evenly throughout the year. US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency. Which of the following rates would be used to translate the company's other expenses?

Under the functional currency translation (FCT) method, which of the following statements is correct?

Which of the following statements is correct with respect to the translation of cost of sales in a foreign operation where the functional currency of the foreign operation is the same as the parent's functional currency?

The exposure resulting from the translation of foreign-currency-denominated financial statements into Canadian dollars is referred to as:

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000. Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars): Current Monetary Assets \ 50,000 Inventory \ 40,000 Plant and Equipment \ 25,000 Total Assets \ 115,000 Current Liabilities \ 45,000 Bonds Payable (maturity: January 1, 2026) \ 20,000 Common Shares \ 30,000 Retained Earnings \ 20,000 Total Liabilities and Equity \ 115,000 The following exchange rates were in effect during 2020: Tanuary 1,2020: US \ 1= CDN \ 1.3250 Average for 2020: US \ 1= CDN \ 1.3350 Date when Ending Inventory Purchased: US \ 1= CDN \ 1.34 December 31,2020: US \ 1= CDN \ 1.35 Sales, purchases and other expenses occurred evenly throughout the year. Dividends declared and paid December 31, 2020. The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below: Balance Sheets Larmer Martin Current Monetary Assets \ 42,050 \ 65,000 Inventory \ 60,000 \ 50,000 Plant and Equipment \ 23,500 \ 20,000 Investment in Martin (at Cost) \ 66,250 Assets \ 191,800 \ 135,000 Current Liabilities \ 50,000 \ 48,000 Bonds Payable (maturity: January 1,2026) \ 35,000 \ 20,000 Common Shares \ 60,000 \ 30,000 Retained Earnings \ 30,000 \ 20,000 Net Income \ 28,800 \ 27,000 Dividends (\ 12,000) (\ 10,000) Liabilities and Equity \ 191,800 \ 135,000 Income Statements Larmer Martin Sales \ 80,000 \ 50,000 Dividend Income \ 10,800 Cost of Sales (\ 40,000) (\ 15,000) Depreciation (\ 10,000) (\ 5,000) Other expenses (\ 12,000) (\ 3,000) Net Income \ 28,800 \ 27,000 Calculate Larmer's Consolidated Net Income for 2020 if Martin's functional currency is the U.S. dollar (i.e., the functional currency of the foreign subsidiary is different than the parent's functional currency).

ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which was acquired January 1, 2020. US1 submitted its financial statements for 2020 to ABC. Selected exchange rates in effect throughout 2020 are shown below: Tanuary 1,2020: US \ 1= CDN \ 0.815 December 31,2020: US \ 1= CDN \ 0.8175 Average for 2020: US \ 1= CDN \ 0.825 Date of Purchase of Inventory on Hand: US \ 1= CDN \ 0.83 Date Dividends were declared: US \ 1= CDN \ 0.8125 US1 financial results for 2020 were as follows: US1 Financial Statements At December 31, 2020 (in U.S. dollars) Income Statement: Sales \ 5,000,000 Cost of Sales \ 3,500,000 Depreciation Expense \ 150,000 Bond Interest Expense \ 100,000 Other Expense \ 750,000 Net Income \ 500,000 Statement of Retained Earnings: January 1, 2020: \ 400,000 Net Income \ 500,000 Dividends \ 100,000) December 31,2020: \ 800,000 Balance Sheet Cash \ 1,200,000 Accounts Receivable \ 1,900,000 Inventory \ 700,000(\ 500,000 January 1, 2020) Plant and Equipment (net) \ 400,000 Current Liabilities \ 4,200,000 Bonds Payable \ 2,000,000 Common Shares \ 1,000,000 Retained Earnings \ 800,000 \ 4,200,000 Sales, purchases, bond interest, and other expenses occurred evenly throughout the year. US1 is considered to be a foreign subsidiary that has the same functional currency as ABC Inc.'s functional currency. If there were no additions or disposals of plant and equipment in 2020, which of the following rates would be used to translate the company's plant and equipment?

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000. Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars): Current Monetary Assets \ 50,000 Inventory \ 40,000 Plant and Equipment \ 25,000 Total Assets \ 115,000 Current Liabilities \ 45,000 Bonds Payable (maturity: January 1,2026) \ 20,000 Common Shares \ 30,000 Retained Earnings \ 20,000 Total Liabilities and Equity \ 115,000 The following exchange rates were in effect during 2020: Aaruary 1,2020: US \ 1= CDN \ 1.3250 Average for 2020: US \ 1= CDN \ 1.3350 Date when Ending Irventory Purchased: US \ 1= CDN \ 1.34 December 31,2020: US \ 1= CDN \ 1.35 Sales, purchases and other expenses occurred evenly throughout the year. Dividends declared and paid December 31, 2020.