C11

1. Under the functional currency translation (FCT) method, which of the following statements is correct?

A. The relationship of balance sheet items is best preserved.

B. A single historic rate is used to translate all income statement items.
C. A net asset exposure is most likely.
D. Historic rates are used to translate most non-monetary items.

2. Under the presentation currency translation (PCT) method, which of the following statements is
correct?

A. Transaction exposure is greatest.

B. The relationship of balance sheet items is best preserved.
C. Income statement items are translated using a mix of rates.
D. Income statement items are translated using average rates.

3. For a self-sustaining foreign operation (i.e., the functional currency of the foreign operation is different
than the parent), exchange gains and losses are to be included in or along with:

A. other comprehensive income.

B. an exchange account.
C. non-controlling interest.
D. the acquisition differential amortization.

4. If the functional currency of the foreign entity is the same as the parent's functional currency, which of
the following statements is correct?

A. The foreign entity is classified as integrated.

B. The foreign entity is classified as self-sustaining.
C. The foreign entity is classified as a foreign affiliate.
D. The investment in the foreign entity is classified as a non-monetary asset.
5. Under the presentation currency translation (PCT) method, which of the following statements is
correct?

A. All balance sheet items excluding shareholders equity are translated using the closing rate in effect at
the balance sheet date.
B. All balance sheet items are translated using the closing rate in effect at the balance sheet date.
C. All balance sheet items are translated using the average rate in effect throughout the year.
D. Only non-current balance sheet items are translated using the closing rate in effect at the balance
sheet date.
6. The risk exposure resulting from the translation of foreign-currency-denominated financial risks is
referred to as:
A. translation (accounting) exposure.
B. transaction exposure.
C. economic exposure.
D. business risk.
7. The risk exposure resulting from the possible reduction in terms of the domestic reporting foreign
currency, of the discounted future cash flows generated from foreign investments or operations due to
real changes in exchange rates is referred to as:
A. translation (accounting) exposure.
B. transaction exposure.
C. economic exposure.
D. business risk.
8. The risk exposure that occurs between the time of entering into a transaction and the time of settling it is
referred to as:
A. translation (accounting) exposure.
B. transaction exposure.
C. economic exposure.
D. business risk.
9. Which of the following statements is correct?

A. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), non-monetary items recorded at cost must be translated using historical rates.
B. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), non-monetary items recorded at cost must be translated using average rates.
C. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), non-monetary items recorded at cost must be translated using closing rates.
D. If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the
foreign operation is the same as the parent), non-monetary items recorded at cost must be translated
using closing rates.
10. Which of the following statements is correct?

A. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), monetary items must be translated using closing rates.
B. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), monetary items must be translated using average rates.
C. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), shareholders' equity must be translated using closing rates.
D. If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the
foreign operation is the same as the parent), non-monetary items recorded at cost must be translated
using average rates.
11. Which of the following statements is correct?

A. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), non-monetary items recorded at closing values must be translated using closing
rates.
B. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), non-monetary items recorded at closing values must be translated using average
rates.
C. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), non-monetary items recorded at closing values must be translated using historical
rates.
D. If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the
foreign operation is the same as the parent), non-monetary items recorded at closing values must be
translated using average rates.
12. Which of the following statements is correct?

A. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), contributed capital must be translated using closing rates.
B. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), contributed capital must be translated using average rates.
C. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), contributed capital must be translated using historical rates.
D. If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the
foreign operation is the same as the parent), contributed capital must be translated using average
rates.
13. Which of the following statements is correct?

A. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), dividends must be translated using closing rates.
B. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), dividends must be translated using average rates.
C. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), dividends must be translated using historical rates.
D. If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the
foreign operation is the same as the parent), dividends must be translated using average rates.
14. Which of the following statements is correct?

A. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), depreciation and amortization must be translated using closing rates.
B. If an organization is self-sustaining (i.e., the functional currency of the foreign operation is different
than the parent), depreciation and amortization must be translated using average rates.
C. If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the
foreign operation is different than the parent), depreciation and amortization must be translated using
historical rates.
D. If an organization is considered an integrated foreign subsidiary (i.e., the functional currency of the
foreign operation is the same as the parent), depreciation and amortization must be translated using
closing rates.
15. Which of the following statements is correct with respect to the translation of cost of sales in an
integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the
parent)?

A. Opening inventory is translated using an average rate.

B. Opening inventory is translated using closing rates.
C. Ending inventory is translated using an average rate.
D. Ending inventory is translated using the rate in effect when the inventory was acquired.
ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which
was acquired January 1, 2017. US1 submitted its financial statements for 2017 to ABC. Selected exchange rates
in effect throughout 2017 are shown below:
January 1, 2017: US $1 = CDN $0.815
December 31, 2017: US $1 = CDN $0.8175
Average for 2017: US $1 = CDN $0.825
Date of Purchase of Inventory on Hand: US $1 = CDN $0.83
Date Dividends were declared: US $1 = CDN $0.8125

US1 financial results for 2017 were as follows:

US1 Financial Statements

at December 31, 2017

(in U.S. dollars)

Income Statement:

Sales $5,000,000

Cost of Sales $3,500,000

Depreciation Expense $150,000
Bond Interest Expense $100,000
Other Expense $750,000
Net Income $500,000

Statement of Retained Earnings:

January 1, 2017: $400,000

Net Income $500,000
Dividends ($100,000)
December 31, 2017: $800,000

Balance Sheet

Cash $1,200,000
Accounts Receivable $1,900,000
Inventory $700,000 ($500,000 January 1, 2017)
Plant and Equipment (net) $400,000
$4,200,000

Current Liabilities $400,000

Bonds Payable $2,000,000
Common Shares $1,000,000
Retained Earnings $800,000
$4,200,000

US1 is considered to be a self-sustaining subsidiary (i.e., the functional currency of the foreign operation is
different than the parent).
16. Which of the following rates would be used to translate the company's income statement items?
A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate income statement items at the average exchange rate for the year (US$1 = CDN$0.825).
17. Which of the following rates would be used to translate the company's Retained Earnings at the start of
the year?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate opening Retained Earnings at the spot exchange rate at the beginning of the year (US$1 =
CDN$0.815).
18. Which of the following rates would be used to translate the company's Dividends paid during the year?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8125
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83
19. Which of the following rates would be used to translate the company's Assets and Liabilities?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83
20. Which of the following rates would be used to translate the company's Common Shares?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83
21. What is the amount of the gain or loss arising from translation?

A. A CDN$5,000 loss.
B. A CDN$750 loss.
C. A CDN$307 loss.
D. A CDN$3,750 gain.
ABC Inc. has a single wholly-owned American subsidiary called US1 based in Los Angeles, California, which
was acquired January 1, 2017. US1 submitted its financial statements for 2017 to ABC. Selected exchange
rates in effect throughout 2017 are shown below:

January 1, 2017: US $1 = CDN $0.815

December 31, 2017: US $1 = CDN $0.8175
Average for 2017: US $1 = CDN $0.825
Date of Purchase of Inventory on Hand: US $1 = CDN $0.83
Date Dividends were declared: US $1 = CDN $0.8125

US1 Financial Results for 2017 were as follows:

US1 Financial Statements,

December 31, 2017

(in U.S. dollars)

Income Statement:

Sales $5,000,000

Cost of Sales $3,500,000

Depreciation Expense $150,000
Bond Interest Expense $100,000
Other Expense $750,000
Net Income $500,000

Statement of Retained Earnings:

January 1, 2017: $400,000

Net Income $500,000
Dividends ($100,000)
December 31, 2017: $800,000

Balance Sheet

Cash $1,200,000
Accounts Receivable $1,900,000
Inventory $700,000 ($500,000 January 1, 2017)
Plant and Equipment (net) $400,000
$4,200,000

Current Liabilities $400,000

Bonds Payable $2,000,000
Common Shares $1,000,000
Retained Earnings $800,000
$4,200,000
US1 is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign operation
is the same as the parent).
22. Which of the following rates would be used to translate the company's sales?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = $0.83 CDN

Translate sales at the average exchange rate for the year (US$1 = CDN$0.825).
23. If the company had no capital asset additions or disposals in 2017, which of the following rates would
be used to translate the company's depreciation expense for the year?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate depreciation expense (assuming no capital asset additions during current year) at the historical
acquisition date exchange rate (US$1 = CDN$0.815).
24. If the bonds were outstanding throughout the year, which of the following rates would be used to
translate the company's bond interest expense for the year?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate bond interest expense at the average exchange rate for the year (US$1 = CDN$0.825).
25. Which of the following rates would be used to translate the company's other expenses?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate other expenses at the average exchange rate for the year (US$1 = CDN$0.825).
26. Which of the following rates would be used to translate the company's beginning retained earnings?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate beginning retained earnings at the opening exchange rate for the year (US$1 = CDN$0.815).
27. Which of the following rates would be used to translate the company's dividends?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8125
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate the dividends at the declaration date exchange rate (US$1 = CDN$0.8125).
28. Which of the following rates would be used to translate the company's cash?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate the cash at the closing exchange rate (US$1 = CDN$0.8175).

29. Which of the following rates would be used to translate the company's accounts receivable?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate the accounts receivable at the closing exchange rate (US$1 = CDN$0.8175).
30. Which of the following rates would be used to translate the company's inventory?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate the inventory at the historical acquisition date exchange rate in effect when the inventory was
purchased (US$1 = CDN$0.83).
31. If there were no additions or disposals of plant and equipment in 2017, which of the following rates
would be used to translate the company's plant and equipment?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate the plant and equipment asset (assuming no capital asset additions during current year) at the
historical acquisition date exchange rate (US$1 = CDN$0.815).
32. Which of the following rates would be used to translate the company's current liabilities?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate the current liabilities at the closing exchange rate (US$1 = CDN$0.8175).
33. Which of the following rates would be used to translate the company's bonds payable?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate the bonds payable at the closing exchange rate (US$1 = CDN$0.8175).
34. Which of the following rates would be used to translate the company's common shares?

A. US$1 = CDN$0.815
B. US$1 = CDN$0.8175
C. US$1 = CDN$0.825
D. US$1 = CDN$0.83

Translate the common shares at the historical acquisition date exchange rate (US$1 = CDN$0.815).
35. For the sake of simplicity, assume once again that US1's cost of sales was calculated to be
CDN$3,000,000. What is the amount (in Canadian dollars) of US1's net income?

A. $300,000.
B. $301,500.
C. $302,500.
D. $412,500.
36. For the sake of simplicity, assume once again that US1's cost of sales was calculated to be
CDN$3,000,000. What is the amount (in Canadian dollars) of US1's retained earnings at December 31,
2017?

A. $545,000.
B. $546,250.
C. $547,250.
D. $660,000.
37. Which of the following statements is correct?

A. If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and integrated
foreign subsidiaries will show a foreign exchange gain.
B. If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and integrated
foreign subsidiaries will show a foreign exchange loss.
C. If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining subsidiary will
show a foreign exchange gain while an integrated foreign subsidiary will show a foreign exchange
loss.
D. If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining subsidiary will
show a foreign exchange loss while an integrated foreign subsidiary will show a foreign exchange
gain.
38. Which of the following statements is FALSE?

A. If a subsidiary is self-sustaining, the method of valuation of assets and liabilities is of no

consequence in the translation because all of the assets are translated at the closing rate.
B. If a subsidiary is an integrated foreign subsidiary, the method of valuation of assets and liabilities is
of no consequence in the translation because all of the assets are translated at the closing rate.
C. If a subsidiary is an integrated foreign subsidiary, a write-down to market may be required in the
translated financial statements.
D. If a subsidiary is an integrated foreign subsidiary, no write-down is required in the foreign currency
financial statements.
39. According to IAS 29 Financial Reporting in Hyperinflationary Economies, the term "hyper-
inflationary" means:

A. an annual inflation rate of 50%.

B. an annual inflation rate of 100%.
C. a cumulative inflation rate of 100% over a 3-5 year period.
D. it does not establish an absolute rate which is deemed to be hyper-inflation.
40. Which of the following is an indication that the functional currency of a foreign subsidiary is not the
Canadian dollar?

A. Only goods imported from the parent are sold by the subsidiary.
B. The parent dictates the subsidiary's operating procedures.
C. Cash to pay obligations is generated by local operations or borrowed from local lenders.
D. Intercompany transactions account for a high proportion of the subsidiary's overall activities.
Maker Ltd., an American company, acquired US$200,000 of capital assets on January 1, 2015, when the
company was established. These assets were being amortized over 10 years on a straight-line basis, with no
significant residual value expected. On January 1, 2016, Holdings Inc., a Canadian company with no capital
assets of its own, acquired 100% of the outstanding shares of Maker. US$40,000 of the acquisition
differential was allocated to the capital assets, which had eight years remaining economic life on the
acquisition date.

On March 1, 2017, Maker acquired a further $80,000 of capital assets, which had an estimated useful life of
eight years from that date.

Exchange rates for the period from January 1, 2015 to December 31, 2017 were:

January 1, 2015 US $1.00 = CDN $1.05

January 1, 2016 US $1.00 = CDN $1.06
Average for 2016 US $1.00 = CDN $1.0625
December 31, 2016 US $1.00 = CDN $1.065
March 1, 2017 US $1.00 = CDN $1.068
Average for 2017 US $1.00 = CDN $1.07
December 31, 2017 US $1.00 = CDN $1.075
41. If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the
foreign operation is different than the parent), what amount will be shown for capital assets (net) on its
translated Canadian dollar financial statements as at December 31, 2016?

A. $168,000.
B. $169,600.
C. $170,000.
D. $170,400.

calculation of translated capital assets (net) on Dec.31,2016:(self-sustaining operations use the

presentation currency translation (PCT) method)
42. If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the
foreign operation is different than the parent), what amount will be shown for capital assets (net) on its
translated Canadian dollar financial statements as at December 31, 2017?

A. $212,500.
B. $224,430.
C. $225,830.
D. $228,438.
43. If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the
foreign operation is different than the parent), what amount will be shown for amortization expense on
its translated Canadian dollar financial statements as at December 31, 2016?

A. $20,000.
B. $21,000.
C. $21,200.
D. $21,250.

calculation of translated amortization expense on capital assets (net) for year ended Dec.31,2016:(self-
sustaining operations use the presentation currency translation (PCT) method; revenues/expenses
translated at average exchange rate for year assuming incurred evenly throughout the year)
44. If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the
foreign operation is different than the parent), what amount will be shown for amortization expense on
its translated Canadian dollar financial statements as at December 31, 2017?

A. $27,500.
B. $29,010.
C. $29,210.
D. $29,425.
45. If Maker is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign
operation is the same as the parent), what amount will be shown for capital assets (net) on its translated
Canadian dollar financial statements as at December 31, 2016?

A. $168,000.
B. $169,600.
C. $170,000.
D. $170,400.
46. If Maker is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign
operation is the same as the parent), what amount will be shown for capital assets (net) on its translated
Canadian dollar financial statements as at December 31, 2017?

A. $212,500.
B. $224,430.
C. $225,830.
D. $228,438.
47. If Maker is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign
operation is the same as the parent), what amount will be shown for amortization expense on its
translated Canadian dollar financial statements as at December 31, 2016?

A. $20,000.
B. $21,000.
C. $21,200.
D. $21,250.
48. If Maker is considered to be an integrated foreign subsidiary (i.e., the functional currency of the foreign
operation is the same as the parent), what amount will be shown for amortization expense on Holdings
consolidated income statements for the year ended on December 31, 2017?

A. $27,500.
B. $29,010.
C. $29,210.
D. $29,425.
49. If Maker is considered to be a self-sustaining foreign subsidiary (i.e., the functional currency of the
foreign operation is different than the parent), what amount will be shown for amortization expense on
its translated Canadian dollar financial statements as at December 31, 2017?

A. $32,500.
B. $34,510.
C. $34,775.
D. $34,938.
50. A foreign subsidiary is considered to be an integrated foreign operation (i.e., the functional currency of
the foreign operation is the same as the parent), and its income is earned evenly over the year. It paid its
income taxes for the year in two instalments, half on June 30 and half on December 31. What rate(s)
should be used to translate the company's income tax expense into Canadian dollars when preparing
translated financial statements for the year?

A. Half at the rate at June 30 and half at the rate at December 31.
B. All at the average rate for the year.
C. All at the closing rate for the year.
D. All at the opening rate for the year.
On December 31, 2016, Hilman Enterprises of Montreal paid $12,000,000 for 100% of the outstanding
shares of Wilsen Corp of the United States. Wilsen's fair values approximated its book values on that
date.

Wilsen's comparative balance sheets for 2016 and 2017 are shown below:

Balance Sheet as at

December 31 (in U.S. Dollars)

2017 2016

Current Monetary Assets $8,000,000 $7,500,000

Inventory $2,000,000 $3,000,000
Plant and Equipment (Net) $1,500,000 $1,800,000
Total Assets $11,500,000 $12,300,000

Current Liabilities $1,100,000 $2,300,000

Bonds Payable (due Dec 31, 2022) $5,000,000 $5,000,000
Common Shares $4,000,000 $4,000,000
Retained Earnings $1,400,000 $1,000,000
Total Liabilities and Equity $11,500,000 $12,300,000

Income Statement for

the Year ended

December 31, 2017

Sales $5,200,000

Inventory, January 1, 2017 $3,000,000

Purchases $3,000,000
Inventory, December 31, 2017 ($2,000,000)
Depreciation Expense $300,000
Other Expenses $400,000
$4,700,000

Net Income $500,000

Other Information:

Exchange Rates:
December 31, 2016: US $1 = CDN $1.1850
September 30, 2017: US $1 = CDN $1.1975
December 31, 2017: US $1 = CDN $1.20
Average for 2017: US $1 = CDN $1.19

Wilsen paid US$100,000 in dividends on September 30, 2017.The inventories on hand at the end of
2017 were purchased when the exchange rate was US$1 = CDN$1.195.
51. Compute Wilsen's exchange gain or loss for 2017 if Wilson is considered to be an integrated subsidiary
(i.e., the functional currency of the foreign operation is the same as the parent).

U.S. Dollars CDN Dollars

Balance, Jan 1, 2016

($7,500 - $2,300 - $5,000) $200,000 x 1.185 $237,000

Changes - 2017
Sales $5,200,000 x 1.19 $6,188,000
Purchases ($3,000,000) x 1.19 ($3,570,000)
Other Expenses ($400,000) x 1.19 ($476,000)
Dividends ($100,000) x 1.1975 ($119,750)

Calculated Monetary Position: $2,259,250

Actual Position, Dec 31, 2017

($8,000 - $1,100 - $5,000) $1,900,000 x 1.20 $2,280,000

Exchange Gain - 2017 $20,750

52. Translate Wilsen's 2014 Income Statement if Wilsen is considered to be an integrated subsidiary (i.e.,
the functional currency of the foreign operation is the same as the parent).

U.S. Dollars CDN Dollars

Sales $5,200,000 x 1.19 $6,188,000

Inventory, January 1, 2017 $3,000,000 x 1.185$3,555,000

Purchases $3,000,000 x 1.19 $3,570,000
Inventory, December 31, 2017 ($2,000,000) x 1.195($2,390,000)
Depreciation Expense $300,000 x 1.185$355,500
Exchange Gain ($20,750)
Other Expenses $400,000 x 1.19 $476,000
$4,700,000 $5,545,750

Net Income $500,000 $642,250

53. Translate Wilsen's December 31, 2017 Statement of Retained Earnings if Wilsen is considered to be an
integrated subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).

U.S. Dollars CDN Dollars

Balance, January 1, 2017 $1,000,000 x 1.185 $1,185,000

Add: Net Income $500,000 $642,250
Less: Dividends ($100,000) x 1.1975 ($119,750)

Retained Earnings $1,400,000 $1,707,500

54. Translate Wilsen's December 31, 2017 Balance Sheet if Wilsen is considered to be an integrated foreign
operation (i.e., the functional currency of the foreign operation is the same as the parent).

Balance Sheet as at
December 31, 2017

U.S Dollars CDN Dollars

Current Monetary Assets $8,000,000 x 1.20 $9,600,000
Inventory $2,000,000 x 1.195 $2,390,000
Plant and Equipment (Net) $1,500,000 x 1.1850 $1,777,500
Total Assets $11,500,000 $13,767,500

Current Liabilities $1,100,000 x 1.20 $1,320,000

Bonds Payable (due Dec 31, 2022) $5,000,000 x 1.20 $6,000,000
Common Shares $4,000,000 x 1.185 $4,740,000
Retained Earnings $1,400,000 $1,707,500
Total Liabilities and Equity $11,500,000 $13,767,500
55. Calculate the exchange gain or loss that would result from the translation of Wilsen's Financial
Statements if Wilsen was considered to be a self-sustaining foreign operation (i.e., the functional
currency of the foreign operation is different than the parent).

U.S. Dollars CDN Dollars

Net Assets, Dec 31, 2016 $5,000,000 x 1.185 $5,925,000
Net Income - 2017 $500,000 x 1.19 $595,000
Dividends - 2017 ($100,000) x 1.1975 ($119,750)
Calculated Net Assets, Dec 31, 2017 $6,400,250
Actual Net Assets $5,400,000 x 1.20 $6,480,000

Exchange Gain: (Other Comprehensive Income) $79,750

56. Translate Wilsen's 2017 Income Statement if Wilsen was considered to be a self-sustaining foreign
operation (i.e., the functional currency of the foreign operation is different than the parent).

U.S. Dollars CDN Dollars

Sales $5,200,000 x 1.19 $6,188,000

Inventory, January 1, 2017 $3,000,000 x 1.19 $3,570,000

Purchases $3,000,000 x 1.19 $3,570,000
Inventory, December 31, 2017 ($2,000,000) x 1.19 ($2,380,000)
Depreciation Expense $300,000 x 1.19 $357,000
Other Expenses $400,000 x 1.19 $476,000
$4,700,000 $5,593,000

Net Income $500,000 x 1.19 $595,000

57. Translate Wilsen's December 31, 2017 Statement of Retained Earnings if Wilsen was considered to be a
self-sustaining foreign operation (i.e., the functional currency of the foreign operation is different than
the parent).

U.S. Dollars CDN Dollars

Balance, January 1, 2017 $1,000,000 x 1.185 $1,185,000

Add: Net Income $500,000 $595,000

Less: Dividends ($100,000) x 1.1975 ($119,750)

Retained Earnings $1,400,000 $1,660,250

58. Translate Wilsen's December 31, 2017 Balance Sheet if Wilsen was considered to be a self-sustaining
foreign operation (i.e., the functional currency of the foreign operation is different than the parent).

Balance Sheet as at
December 31, 2017

U.S Dollars CDN Dollars

Current Monetary Assets $8,000,000 x 1.2 $9,600,000

Inventory $2,000,000 x 1.2 $2,400,000
Plant and Equipment (Net) $1,500,000 x 1.2 $1,800,250
Total Assets $11,500,000 $13,800,000

Current Liabilities $1,100,000 x 1.2 $1,320,000

Bonds Payable (due Dec 31, 2022) $5,000,000 x 1.2 $6,000,000
Common Stock $4,000,000 x 1.185 $4,740,000
Retained Earnings $1,400,000 $1,660,250

Cumulative Other Comprehensive Income - $79,750

Total Liabilities and Equity $11,500,000 $13,800,000

On January 1, 2017, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American
company, for US$50,000.

Martin's book values approximated its fair values on that date except for plant and equipment, which
had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss
of US$1,000 occurred during 2017. Martin's January 1, 2017 Balance Sheet is shown below (in U.S.
dollars):

Current Monetary Assets $50,000

Inventory $40,000
Plant and Equipment $25,000
Total Assets $115,000

Current Liabilities $45,000

Bonds Payable (maturity: January 1, 2022) $20,000
Common Shares $30,000
Retained Earnings $20,000
Total Liabilities and Equity $115,000

The following exchange rates were in effect during 2017:

January 1, 2017: US $1 = CDN $1.3250

Average for 2017: US $1 = CDN $1.3350
Date when Inventory Purchased: US $1 = CDN $1.34
December 31, 2017: US $1 = CDN $1.35

Dividends declared and paid December 31, 2017.

The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:

Balance Sheets
Larmer Martin

Current Monetary Assets $42,050 $65,000

Inventory $60,000 $50,000
Plant and Equipment $23,500 $20,000
Investment in Martin (at Cost) $66,250 -
Assets $191,800 $135,000

Current Liabilities $50,000 $48,000

Bonds Payable (maturity: January 1, 2022) $35,000 $20,000
Common Shares $60,000 $30,000
Retained Earnings $30,000 $20,000
Net Income $28,800 $27,000
Dividends ($12,000) ($10,000)
Liabilities and Equity $191,800 $135,000

Income Statements Larmer Martin

Sales $80,000 $50,000
Dividend Income $10,800 -
Cost of Sales ($40,000) ($15,000)
Depreciation ($10,000) ($5,000)
Other expenses ($12,000) ($3,000)
Net Income $28,800 $27,000
59. Compute Martin's exchange gain or loss for 2017 if Martin is considered to be an integrated foreign
subsidiary (i.e., the functional currency of the foreign operation is the same as the parent).

Current monetary position

U.S. Dollars CDN Dollars

Balance, Jan 1, 2017
($50,000 - $45,000 - $20,000) ($15,000) x 1.325 ($19,875)

Changes - 2017
Sales $50,000 x 1.335 $66,750
Purchases ($25,000) x 1.335 ($33,375)
Other Expenses ($3,000) x 1.335 ($4,005)
Dividends ($10,000) x 1.35 ($13,500)

Calculated Monetary Position: ($4,005)

Actual Position, Dec 31, 2017

($65,000 - $48,000 - $20,000) ($3,000) x 1.35 ($4,050)

Exchange Loss - 2017 $45

60. Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be an
integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the
parent).

U.S. Dollars CDN Dollars

Sales $50,000 x 1.335 $66,750

Cost of Sales ($15,000) ($19,375)
Depreciation ($ 5,000) x 1.325 ($6,625)
Exchange loss ($45)
Other expenses ($3,000) x 1.335 ($4,005)
Net Income $27,000 $36,700

Cost of Sales is calculated as follows: U.S. Dollars CDN Dollars

Inventory, January 1, 2017 $40,000 x 1.325 $53,000

Add: Purchases $25,000 x 1.335 $33,375
Less: Inventory, Dec 31, 2017 ($50,000) x 1.34 ($67,000)
Cost of Sales $15,000 $19,375
61. Translate Martin's December 31, 2017 Balance Sheet into Canadian dollars if Martin is considered to be
an integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the
parent).

U.S. Dollars CDN Dollars

Current Monetary Assets $65,000 x 1.35 $87,750
Inventory $50,000 x 1.34 $67,000
Plant and Equipment $20,000 x 1.325 $26,500
Assets $135,000 $181,250

Current Liabilities $48,000 x 1.35 $64,800

Bonds Payable (maturity: Jan. 1, 2022) $20,000 x 1.35 $27,000
Common Stock $30,000 x 1.325$39,750
Retained Earnings $20,000 x 1.325$26,500
Net Income $27,000 $36,700
Dividends ($10,000) x 1.35 ($13,500)
Liabilities and Equity $135,000 $181,250

62. Prepare Larmer's December 31, 2017 Consolidated Balance Sheet if Martin is considered to be an
integrated foreign subsidiary (i.e., the functional currency of the foreign operation is the same as the
parent).

Larmer Inc.
Consolidated Balance Sheet
As at December 31, 2017

Current Monetary Assets $129,800

Inventory $127,000
Plant and Equipment ($23,500 + $26,500 + $5,300) $55,300
Goodwill ($6,500 x 1.325) $8,613
Assets $320,713

Current Liabilities $114,800

Bonds Payable (maturity: January 1, 2022) $62,000
Non-Controlling Interest $20,673
Common Stock $60,000
Retained Earnings $63,240
Liabilities and Equity $320,713
63. Compute Martin's exchange gain or loss for 2017 if Martin is considered to be a self-sustaining foreign
subsidiary (i.e., the functional currency of the foreign operation is different than the parent).

Current monetary position

U.S. Dollars CDN Dollars

Net assets $50,000 x 1.325 $66,250
Net income: 2017 $27,000 x 1.335 $36,045
Dividends ($10,000) x 1.35 ($13,500)

Calculated net assets: $88,795

Actual net assets: $67,000 x 1.35 $90,450

Exchange Gain - 2017 (other comprehensive income) $1,655

64. Translate Martin's 2017 Income Statement into Canadian dollars if Martin is considered to be a self-
sustaining foreign subsidiary (i.e., the functional currency of the foreign operation is different than the
parent).

U.S. Dollars CDN Dollars

Sales $50,000 x 1.335 $66,750

Cost of sales ($15,000) x 1.335 ($20,025)
Depreciation ($ 5,000) x 1.335 ($6,675)
Other expenses ($3,000) x 1.335 ($4,005)
Net income $27,000 $36,045

65. Calculate Larmer's Consolidated Net Income for 2017 if Martin is considered to be a self-sustaining
foreign subsidiary (i.e., the functional currency of the foreign operation is different than the parent).

Calculation of Consolidated Net Income

Larmer - Net income $28,800

Less: Dividends from Martin (as recorded) ($10,800)

Less: Amortization of acquisition differenial ($1,335)
Less: Goodwill impairment ($1,335)

Add: Martin's net income $36,045

Net income: $51,375

Attributable to:

Shareholders of Parent $43,632

Non-controlling interest $7,743