Question

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

Answer 1

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