Chapter 10, Problem 35P

a.

To determine

Remeasure the Mexican operations account balances into Canadian dollars.

Explanation of Solution

Remeasure non functional currency accounts into foreign functional currency and then translates foreign functional currency statement into US Dollar re-measurement of Mexican operation:

Particulars	Debit ($)	Credit ($)
Accounts payable                   $49,000\times 0.35\text{C}$		17,150
Accumulated depreciation $19,000\times 0.25\text{H}$		4,750
Building and equipment     $40000\times 0.25\text{H}$	10,000
Cash                                       $59,000\times 0.35\text{C}$	20,650
Depreciation expense            $2,000\times 0.25\text{H}$	500
Inventory (2016) ( Beginning)$23,000\times 0.3\text{A}$	6,900
Inventory (2017)( closing)     $28,000\times 0.34\text{A}$		9,520
Inventory (2017) ( ending balance sheet) $8,000\times 0.34\text{A}$	9,520
Purchase (2017)                     $68,000\times 0.34\text{A}$	23,120
Receivable                               $21,000\times 0.35\text{C}$	7,350
Salary                                         $9,000\times 0.34\text{A}$	3,060
Sales                                        $124,000\times 0.34\text{A}$		42,160
Main office                              $30,000\left(\text{given}\right)$		7,530
Remesurement Loss  (schedule One)	10
Total	81,110	81,110

Table: (1)

Working note:

Schedule One Remesurement loss:

Particulars	Amount ($)
Net monetary liability (1/1/17)    $\left(16,000\right)\times 0.32$	(5,120)
Increase in net monetary assets :
Sales                                            $124,000\times 0.34$	42,160
Decrease in net monetary assets :
Purchase                                      $\left(68,000\right)\times 0.34$	(23,120)
Salary                                            $\left(9,000\right)\times 0.34$	(3,060)
Net monetary assets (12/31/2017)	10,860
Net asset at Current rate    $31,000\times 0.35$	10,850
Remeasurement loss	10

Table: (2)

Note:

• Non monetary liability on 1/1/2017 can be determined by first calculating net monetary asset and then backing out changes in assets and liability in monetary terms in 2017.
• $\text{Net monetary assets }12/31/2017=\text{Cash}+\text{Receivables}-\text{Accounts}\text{Payables}$

b.

To determine

Prepare financial statement for the Canadian subsidiary in its functional currency Canadian dollar and consolidated balance sheet.

Explanation of Solution

The financial statements are to be prepare by combination with the remesurement figures from the branch operation. They both will affect each other.

For the year ended December 31, 2107 current rate method:

Particulars	Amount ($)
Sales $\left(354,160\times 0.67\text{A}\right)$	237287.2
Cost of goods sold $\left(223,500\times 0.67\text{A}\right)$	149,745
Gross Profit	87,542.20
Depreciation expense            $\left(8,500\right)\times 0.67\text{A}$	(5,695)
$2,000\times 0.25\text{H}$	500
Salary expenses $29,060\times 0.67\text{A}$	19,470.20
Utility Expenses $\left(9,000\right)\times 0.67\text{A}$	(6,030
Gain on sale of equipment   $5,000\times 0.68\text{H}$	3,400
Re-measurement loss $\left(10\right)\times 0.67\text{A}$	(6.7)
Net income	59748.30

Table: (3)

Statement of retained earnings for the year ended December 31, 2017:

Particulars	Amount ($)
Retained earnings (1/1/2017)     135,530 ( given)	70,421
Net income ( above)                    89090 ( above)	59740.3
Dividend paid                             $\left(28,000\right)\times 0.69\text{H}$	(19,320)
Retained earnings (12/31/2017)	110841.3

Table: (4)

Consolidated Balance sheet on December 31, 2017
Particulars	Amount ( $)
Cash   $46,650\times 0.65\text{C}$	30322.5
Receivables $75,350\times 0.65\text{C}$	48977.5
Inventory $107,520\times 0.65\text{C}$	69,880
Building and equipment $177,000\times 0.65\text{C}$	115,050
Accumulated Depreciation $\left(31,750\right)\times 0.65\text{C}$	(20637.5)
Total              374,770	243,600.5
Accounts Payable  $52,150\times 0.65\text{C}$	33897.5
Notes Payable $76,000\times 0.65\text{C}$	(72,950)
Common stock $50,000\times 0.45\text{H}$	22,500
Retained earnings $196,620\times \text{Above}$	112841.3
Cumulative translation adjustment (schedule two)	26,961.7
Total                374,770	243,600.5

Table: (5)

c.

To determine

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

Explanation of Solution

Translation adjustment (schedule two):

Particulars	Amount
Net Assets (1/1/17)    $185,530\times 0.70$	129,871
Change in net assets :
Net income                  $89090\left(\text{Above}\right)$	59740.3
Dividend                     $\left(28,000\right)\times 0.69$	(19,320)
Net asset 12/31/2017     246,620	170291.3
Net asset 12/31/2017 at current exchange rate $246620\times 0.65$	160,303
Translation adjustment, 2017 ( negative)	9,988.30
Cumulative translation adjustment ( Beginning) ( Positive)	36,950
Cumulative translation adjustment ( ending) ( Positive)	(26961.70)

Table: (6)