Question

Maples Corporation is a Canadian subsidiary of a U.S. parent company. Shown below is the company’s local currency income statement for 20X1. All transactions the company entered into should be considered to have occurred evenly throughout the year, except for the loss on storm damage, which occurred on September 30, 20X1, and resulted in the destruction of certain fixed assets. The U.S. parent translates Maples’ financial statements into U.S. dollars using the current rate method.

(in millions of Canadian dollars)
Sales	C$	480.7
Cost of goods sold		(211.1	)
Loss on storm damage		(25.0	)
Selling, general, and administrative expenses		(103.0	)
Net income	C$	141.6

Exchange rates between the Canadian dollar and the U.S. dollar (stated as the U.S. dollar value of one Canadian dollar) at various times were as follows:

Historical exchange rate when inventory that was sold in 20X1 was purchased		0.85
Historical exchange rate when property that was destroyed in storm was purchased		0.98
Average for 20X1		0.76
December 31, 20X0		0.80
September 30, 20X1		0.74
December 31, 20X1		0.73

Required:

1. What is the amount of net income that would appear in Maples’ 20X1 U.S. dollar income statement after translation under the current rate method?
2. Suppose Maple’s retained earnings at December 31, 20X0, was C$519.1 million. It was US$472.0 million as shown in the company’s U.S. dollar balance sheet on the same date. Maples did not declare or pay any dividends in 20X1. What amount of retained earnings would it report in its December 31, 20X1, U.S. dollar balance sheet?

(For all requirements, round your intermediate and final answer to 3 decimal places. Enter your answer in millions and not in whole dollars.)

Answer 1

Ans 1.
Particulars	In CAD $M	Transaltion rate	Amt in USD $M
Sales	480.7	0.76	365.33
Cost of Goods Sold	-211.1	0.76	(160.44)
Loss on storm damage	-25	0.74	(18.50)
Selling & Gen Admin exp	-103	0.76	(78.28)
Net Income	141.6		108.12
For P/L revenue and cost we use average exchange rate for the year.
Only the abnormal loss will be valued at the specific rate of the
date when it happned.
So Net Income under current rate method in USD =$108.12

Ans 2.
Beginning Retained earning will be valued at the last year's closing value only.
So the Retained Earning position as on Dec 31,20x1 will be like this :
Retained Earning in Balance Sheet	Amt USD $M
Opening Retained Earning	472.00
Add Net Income for 20x1	108.12
Closing Balance Retained Earning Dec31,20x1	580.12