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Remeasurement of financial statements Assume that your company owns a subsidiary operating in Canada. The subsidiary...

Remeasurement of financial statements
Assume that your company owns a subsidiary operating in Canada. The subsidiary has adopted the Canadian Dollar (CAD) as its functional currency. Your parent company operates this subsidiary like a division or a branch office, making all of its operating decisions, including pricing of its products. You conclude, therefore, that the functional currency of this subsidiary is the $US and that its financial statements must be remeasured using the temporal method prior to consolidation. The subsidiary's financial statements (in CAD) for the most recent year follow in part a. below:

The relevant exchange rates for the $US value of the Canadian Dollar (CAD) are as follows:

BOY rate $0.95
EOY rate $1.05
Avg. rate $0.98
Dividend rate $1.04
Historical rates:
Beginning inventory $0.95
Land $0.70
Building $0.72
Equipment $0.73
Historical rate (common stock and APIC) $0.50

For parts a. and b. below, use a negative sign with answers to indicate a reduction.

a. Remeasure the subsidiary's income statement, statement of retained earnings, and balance sheet into $US using the temporal method for the current year (assume that the BOY Retained Earnings is $7,667,700).

Round all answers in the "In US Dollars" column to the nearest dollar.


(in CAD)
Remeasurement
Rate
In
US Dollars
Beginning inventory $4,470,000 Answer Answer
Purchases 11,694,000 Answer Answer
Ending inventory (5,364,000) Answer Answer
Cost of goods sold $10,800,000 Answer
Land $3,921,600 Answer Answer
Building 7,200,000 Answer Answer
Accum.deprec.-building (3,600,000) Answer Answer
Equipment 4,800,000 Answer Answer
Accum.deprec.-equipment (2,400,000) Answer Answer
Property, plant, and equipment (PPE), net $9,921,600 Answer
Depreciation expense-building $360,000 Answer Answer
Depreciation expense-equipment 480,000 Answer Answer
Depreciation expense $840,000 Answer
Income statement:
Sales $18,000,000 Answer Answer
Cost of goods sold (10,800,000) Answer
Gross profit 7,200,000 Answer
Operating expenses (3,840,000) Answer Answer
Depreciation (840,000) Answer
AnswerRemeasurement gainRemeasurement loss Answer
Net income $2,520,000 Answer
Statement of retained earnings:
BOY retained earnings $9,450,000 Answer
Net income 2,520,000 Answer
Dividends (252,000) Answer Answer
Ending retained earnings $11,718,000 Answer
Balance sheet:
Assets
Cash $5,122,800 Answer Answer
Accounts receivable 4,176,000 Answer Answer
Inventory 5,364,000 Answer
Property, plant, and equipment (PPE), net 9,921,600 Answer
Total assets $24,584,400 Answer
Liabilities and stockholders' equity
Current liabilities $3,052,800 Answer Answer
Long-term liabilities 7,113,600 Answer Answer
Common stock 1,200,000 Answer Answer
APIC 1,500,000 Answer Answer
Retained earnings 11,718,000 Answer
Total liabilities and equity $24,584,400 Answer

b. A Compute the remeasurement gain or loss directly assuming BOY net monetary assets of (3,081,600), a net monetary liability.

Round all answers to the nearest dollar.

Change in net monetary assets:
AnswerBOY net monetary assets x (EOY - BOY exchange rates)BOY net monetary assets x BOY exchange rateSales x average exchange ratePurchases x average exchange rateOperating expenses x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net monetary assets x EOY exchange rateChg net monetary assets x (EOY - Avg exchange rate)Remeasurement lossEnding net monetary assets Answer
Chg net monetary assets x (EOY - Avg exchange rate) Answer
AnswerBOY net monetary assets x (EOY - BOY exchange rates)BOY net monetary assets x BOY exchange rateSales x average exchange ratePurchases x average exchange rateOperating expenses x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net monetary assets x EOY exchange rateChg net monetary assets x (EOY - Avg exchange rate)Remeasurement lossEnding net monetary assets Answer
AnswerBOY net monetary assets x (EOY - BOY exchange rates)BOY net monetary assets x BOY exchange rateSales x average exchange ratePurchases x average exchange rateOperating expenses x average exchange rateDividends x (EOY - Dividend exchange rate)Dividends x dividend exchange rateEOY net monetary assets x EOY exchange rateChg net monetary assets x (EOY - Avg exchange rate)Remeasurement lossEnding net monetary assets Answer

Solutions

Expert Solution

Answer
CAD $ Rate Remeasurement Rate $ in US $
Beginning inventory $        4,470,000.00 Historical Rate $                                       0.95 $       4,246,500.00
Purchases $      11,694,000.00 Average rate $                                       0.98 $     11,460,120.00
Ending Inventory $      (5,364,000.00) EOY Rate $                                       1.05 $     (5,632,200.00) WN1
Cost of Good Sold $      10,800,000.00 $     10,074,420.00
Land $        3,921,600.00 Historical Rate $                                       0.70 $       2,745,120.00
Building $        7,200,000.00 Historical Rate $                                       0.72 $       5,184,000.00
Less Accumulated Dep. $      (3,600,000.00) Historical Rate $                                       0.72 $     (2,592,000.00)
Equipment $        4,800,000.00 Historical Rate $                                       0.73 $       3,504,000.00
Less Accumulated Dep. $      (2,400,000.00) Historical Rate $                                       0.73 $     (1,752,000.00)
Propert Plant & equipment $        9,921,600.00 $       7,089,120.00 WN4
Depreciation Expense-Building $            360,000.00 Historical Rate $                                       0.72 $           259,200.00
Depreciation Expense-Equipment $            480,000.00 Historical Rate $                                       0.73 $           350,400.00
$            840,000.00 $           609,600.00 WN2
Income Statement
Sales $      18,000,000.00 Average rate $                                       0.98 $     17,640,000.00
Less Cost of Good Sold $    (10,800,000.00) WN1 $ (10,074,420.00)
Gross Profit $        7,200,000.00 $       7,565,580.00
Less Operating Expene $      (3,840,000.00) Average rate $                                       0.98 $     (3,763,200.00)
Less Depreciation $          (840,000.00) WN2 $        (609,600.00)
Net Income $        2,520,000.00 $       3,192,780.00 WN3
Statement of Retained Earning
BOY Retained Earning $        9,450,000.00 Given in question $                                       0.81 $       7,667,700.00
Net Income $        2,520,000.00 WN3 $       3,192,780.00
Less: Dividend $          (252,000.00) Dividend Rate $                                       1.04 $        (262,080.00)
Ending Retained Earning $      11,718,000.00 $     10,598,400.00 WN5
Balance Sheet
Asset
Cash $        5,122,800.00 EOY Rate $                                       1.05 $       5,378,940.00
Account Recievable $        4,176,000.00 EOY Rate $                                       1.05 $       4,384,800.00
Inventory $        5,364,000.00 WN1 $       5,632,200.00
Remeasurement Loss BF $           138,060.00
Property , Plant & Equpment $        9,921,600.00 WN4 $       7,089,120.00
Total Assets $      24,584,400.00 $     22,623,120.00
Laibility & Stockholder Equity
Current Liabilities $        3,052,800.00 EOY Rate $                                       1.05 $       3,205,440.00
Long term Liabilities $        7,113,600.00 EOY Rate $                                       1.05 $       7,469,280.00
Common stock $        1,200,000.00 Historical Rate $                                       0.50 $           600,000.00
APIC $        1,500,000.00 Historical Rate $                                       0.50 $           750,000.00
Retained Earning $      11,718,000.00 WN5 $     10,598,400.00
$      24,584,400.00 $     22,623,120.00

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