Stilton Company (a U.S.-based company) has a subsidiary in Canada that began operations at the start of 2024 with assets of 133,000 Canadian dollars (CAD) and liabilities of CAD 56,000. During this initial year of operation, the subsidiary reported a profit of CAD 27,000. It distributed two dividends, each for CAD 5,100 with one dividend declared on March 1 and the other on October 1. Applicable U.S. dollar ($) exchange rates for 1 Canadian dollar follow: January 1, 2024 (start of business) March 1, 2024 Weighted average rate for 2024 October 1, 2024 December 31, 2024 Required: $ 0.70 0.68 0.67 0.66 0.65 a. Assume that the Canadian dollar is this subsidiary's functional currency. What translation adjustment would the company report for the year 2024? b. Assume that on October 1, 2024, Stilton entered into a forward exchange contract to hedge the net investment in this subsidiary. On that date, the company agreed to sell CAD 210,000 in three months at a forward exchange rate of $0.66/CAD 1. Prepare the journal entries required by this forward contract. c. Compute the net translation adjustment the company will report in accumulated other comprehensive income for the year 2024 under this second set of circumstances. Complete this question by entering your answers in the tabs below. Required A Required B Required C Assume that the Canadian dollar is this subsidiary's functional currency. What translation adjustment would the company report for the year 2024? Negative translation adjustment $ 138,600
Stilton Company (a U.S.-based company) has a subsidiary in Canada that began operations at the start of 2024 with assets of 133,000 Canadian dollars (CAD) and liabilities of CAD 56,000. During this initial year of operation, the subsidiary reported a profit of CAD 27,000. It distributed two dividends, each for CAD 5,100 with one dividend declared on March 1 and the other on October 1. Applicable U.S. dollar ($) exchange rates for 1 Canadian dollar follow: January 1, 2024 (start of business) March 1, 2024 Weighted average rate for 2024 October 1, 2024 December 31, 2024 Required: $ 0.70 0.68 0.67 0.66 0.65 a. Assume that the Canadian dollar is this subsidiary's functional currency. What translation adjustment would the company report for the year 2024? b. Assume that on October 1, 2024, Stilton entered into a forward exchange contract to hedge the net investment in this subsidiary. On that date, the company agreed to sell CAD 210,000 in three months at a forward exchange rate of $0.66/CAD 1. Prepare the journal entries required by this forward contract. c. Compute the net translation adjustment the company will report in accumulated other comprehensive income for the year 2024 under this second set of circumstances. Complete this question by entering your answers in the tabs below. Required A Required B Required C Assume that the Canadian dollar is this subsidiary's functional currency. What translation adjustment would the company report for the year 2024? Negative translation adjustment $ 138,600
Chapter9: Taxation Of International Transactions
Section: Chapter Questions
Problem 25P
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Question
Transcribed Image Text:Stilton Company (a U.S.-based company) has a subsidiary in Canada that began operations at the start of 2024 with assets of 133,000
Canadian dollars (CAD) and liabilities of CAD 56,000. During this initial year of operation, the subsidiary reported a profit of CAD
27,000. It distributed two dividends, each for CAD 5,100 with one dividend declared on March 1 and the other on October 1. Applicable
U.S. dollar ($) exchange rates for 1 Canadian dollar follow:
January 1, 2024 (start of business)
March 1, 2024
Weighted average rate for 2024
October 1, 2024
December 31, 2024
Required:
$ 0.70
0.68
0.67
0.66
0.65
a. Assume that the Canadian dollar is this subsidiary's functional currency. What translation adjustment would the company report for
the year 2024?
b. Assume that on October 1, 2024, Stilton entered into a forward exchange contract to hedge the net investment in this subsidiary. On
that date, the company agreed to sell CAD 210,000 in three months at a forward exchange rate of $0.66/CAD 1. Prepare the journal
entries required by this forward contract.
c. Compute the net translation adjustment the company will report in accumulated other comprehensive income for the year 2024
under this second set of circumstances.
Complete this question by entering your answers in the tabs below.
Required A Required B Required C
Assume that the Canadian dollar is this subsidiary's functional currency. What translation adjustment would the company
report for the year 2024?
Negative
translation adjustment
$ 138,600
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