Question

Sendelbach Corporation is a U.S.-based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primarily in Canada, it engages in some transactions through a branch in Mexico. Therefore, the subsidiary maintains a ledger denominated in Mexican pesos (Ps) and a general ledger in Canadian dollars (C$). As of December 31, 2017, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows:

Main Operation—Canada
	Debit			Credit
Accounts payable				C$	43,590
Accumulated depreciation					43,000
Buildings and equipment	C$	183,000
Cash		42,000
Common stock					66,000
Cost of goods sold		219,000
Depreciation expense		8,500
Dividends, 4/1/17		35,000
Gain on sale of equipment, 6/1/17					6,600
Inventory		95,000
Notes payable—due in 2020					85,000
Receivables		84,000
Retained earnings, 1/1/17					151,590
Salary expense		39,000
Sales					328,000
Utility expense		10,600
Branch operation		7,680
Totals	C$	723,780		C$	723,780

Branch Operation—Mexico
	Debit			Credit
Accounts payable				Ps	68,600
Accumulated depreciation					41,600
Building and equipment	Ps	56,000
Cash		67,000
Depreciation expense		3,600
Inventory (beginning—income statement)		39,000
Inventory (ending—income statement)					36,000
Inventory (ending—balance sheet)		36,000
Purchases		73,000
Receivables		37,000
Salary expense		10,600
Sales					140,000
Main office					36,000
Totals	Ps	322,200		Ps	322,200

• The Canadian subsidiary’s functional currency is the Canadian dollar, and Sendelbach’s reporting currency is the U.S. dollar. The Canadian and Mexican operations are not viewed as separate accounting entities.

• The building and equipment used in the Mexican operation were acquired in 2007 when the currency exchange rate was C$0.20 = Ps 1.

• Purchases of inventory were made evenly throughout the fiscal year.

• Beginning inventory was acquired evenly throughout 2016; ending inventory was acquired evenly throughout 2017.

• The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$7,680 on December 31, 2017.

• Currency exchange rates for 1 Ps applicable to the Mexican operation follow:

Weighted average, 2016	C$	0.25
January 1, 2017		0.27
Weighted average rate for 2017		0.29
December 31, 2017		0.30

• The December 31, 2016, consolidated balance sheet reported a cumulative translation adjustment with a $52,950 credit (positive) balance.

• The subsidiary’s common stock was issued in 2004 when the exchange rate was $0.45 = C$1.

• The subsidiary’s December 31, 2016, retained earnings balance was C$151,590, an amount that has been translated into U.S.$69,663.

• The applicable currency exchange rates for 1 C$ for translation purposes are as follows:

January 1, 2017	US$	0.70
April 1, 2017		0.69
June 1, 2017		0.68
Weighted average rate for 2017		0.67
December 31, 2017		0.65

1. Remeasure the Mexican operation’s account balances into Canadian dollars. (Note: Back into the beginning net monetary asset or liability position.)

2. Prepare financial statements (income statement, statement of retained earnings, and balance sheet) for the Canadian subsidiary in its functional currency, Canadian dollars.

3. Translate the Canadian dollar functional currency financial statements into U.S. dollars so that Sendelbach can prepare consolidated financial statements.

4. SENDELBACH CORPORATION Financial Statements For the Year Ended December 31, 2017 Canadian Dollar U.S. Dollar Income Statement: Sales C$ Cost of goods sold Gross profit C$ 0 $0.00 Salary expense Utility expense Depreciation expense Gain on sale of equipment Remeasurement loss Net income C$ 0 $0.00 Statement of Retained Earnings: Retained earnings, 1/1/15 C$ Net income Retained earnings, 12/31/15 C$ 0 $0.00 Balance Sheet: Assets: Cash C$ Buildings and equipment Receivables Inventory Total C$ 0 $0.00 Liabilities and Equities: Common stock C$ Cumulative translation adjustment Retained earnings Total C$ 0 $0.00

Answer 1

Mexico Branch Operations	PS		Canadian dollar
	Dr	Cr		Dr	Cr
Accounts Payable		68600			20580
Accumulated depreciation		41600			12480
Building & Equipment	56000			11200
Cash	67000			20100
Depreciation Expense	3600			1080
Inventory Beginning	39000			10530
Inventory Ending		36000			10800
Inventory Balance sheet	36000			10800
Purchases	73000			21170
Receivables	37000			11100
Salary Expenses	10600			3074
Ssales		140000			40600
Main office		36000			7680
Difference in Exchange account				3086
	322200	322200		92140	92140

Income statement of Canadian Subsidiary
Sales		3,68,600
Gain on sale of equipments		6,600	3,75,200
To Opening stock		10,530
To Purchases		2,40,170
Less:-Closing stock		1,05,800	1,44,900
Gross profit			2,30,300
Less:- Operational expenses
Salaries		3,074
Depreciation		9,580
Utility expenses		10,600
Difference in exchange account		3086	26,340
Net Profit			2,03,960

Balance sheet for Canadian Subsidiary
Liabilities
Common stock		66,000.0
Retained earnings		3,55,550.0
Notes payable		85,000.0
Sundry Creditors
Accounts payables		43,590.0
Total		5,50,140.0
Assets
Building at Cost	1,94,200.0
Less :- Accumulated depreciation	55,480.0	1,38,720.0
Curret assets
Acounts receivables		95,100.0
Cash		62,100.0
Dividends		35,000.0
Branch operations		7,680.0
Difference in exchange account		3,086.0
Inventory		1,05,800.0
Total		4,47,486.0

Statement of Retained earnings
Opening balance	151590
Add :- Profit during the period	2,03,960
Balance carried to Balance sheet	3,55,550