At the beginning of 2010 GAGA, an American Company purchased all of the stock of
ID: 2473759 • Letter: A
Question
At the beginning of 2010 GAGA, an American Company purchased all of the stock of Bieber Company a Canadian Company for $600,000 US dollars when the Canadian dollar was worth $1. At this time all the assets of Bieber had a book value equal to their market value and the owner’s equity of Bieber was $580,000. Additional information about Bieber: In 2011 Bieber bought equipment for 1,000,000 Canadian dollars when the Canadian dollar was worth $0.97. In 2012 Bieber bought the land for 200,000 Canadian dollars when the Canadian dollar was worth $1.01. On 12/31/2015 Bieber’s retained earnings in US dollars was $350,000 The average exchange rate in 2016 was 1 Canadian dollar = $0.91 The exchange rate on 12/31/2016 was 1 Canadian dollar = $0.95 The exchange rate on 8/1/2016 when Bieber paid a 10,000 Canadian dollar dividend was 1 Canadian dollar equals $0.97 INCOME STATEMENT for the year 2016 Prepared under US Gaap GAGA (US $) BIEBER (Canadian $) SALES 3,000,000 200,000 SALARY EXPENSE 400,000 50,000 DEPRECIATION EXP 1000000 100,000 INVESTMENT INC. 9700 0 INCOME 1,609,700 50000 BALANCE SHEET GAGA BIEBER CASH 11,000,000 630,000 A/R 5,000,000 200,000 EQUIPMENT 10,000,000 1,000,000 A/D EQUIPMENT 2,000,000 200,000 LAND 1,000,000 200,000 INVESTMENT IN BIEBER 600,000 0 TOTAL ASSETS 25,600,000 1,830,000 NOTE PAYABLE 5,000,000 800,000 COMMON STOCK 12,500,000 600,000 RETAINED EARNINGS 8,100,000 430,000 NOTE: GAGA USES THE INITIAL VALUE METHOD FOR ITS INVESTMENT IN BIEBER; HENCE THE INVESTMENT STAYS AT 600,000 AND INVESTMENT INCOME IS ONLY THE DIVIDEND OF BIEBER. REQUIRED:
A) REMEASURE THE FINANCIAL STATEMENTS OF BIEBER INTO US DOLLARS USING THE TEMPORAL METHOD
B) TRANSLATE THE FINANCIAL STATEMENTS OF BIEBER INTO US DOLLARS USING THE CURRENT RATE METHOD
Explanation / Answer
The following points should be kept in mind in order to convert the financial statements from Canadian Dollars to US Dollars
BALANCE SHEET
1. Monetary Items - Translate using current exchange rates; this includes: cash, accounts receivable, accounts payable, long-term debt, and other assets or liabilities that are measured in currency outside of general price level changes.
2. Nonmonetary Items - Items reported at historical cost are translated using historical exchange rates that existed when the assets were purchased. This includes: inventories, fixed assets, and intangible assets.
3. Capital Stock (Equity) Issued - Translate using the exchange rate in existence on the date of the stock issuance.
4. Retained Earnings - This is not translated, but is a plug value used in balancing assets with liabilities + owner’s equity on the balance sheet.
NOTE : IN YOUR QUESTION, YOU HAVE GIVEN TOTAL ASSETS AS 1,830,000 BUT THE VALUES YOU HAVE GIVEN ARE TOTALLING AS 2,230,000
INCOME STATEMENT
1. Non-Balance Sheet Items - Sales and some expenses are translated using the weighted average exchange rate for the accounting period.
2. Balance Sheet Items - Expense items linked to specific non-monetary balance sheet items are translated with the associated rate for the balance sheet item. Expenses translated in this manner include: cost of goods sold, depreciation, and amortization.
BALANCE SHEET PARTICULARS CANADIAN DOLLARS RATE US DOLLARS CASH 630000 $0.95/CAD 598500 A/R 200000 $0.95/CAD 190000 EQUIPMENT 1000000 $0.97/CAD 970000 A/D EQUIPMENT 200000 $0.95/CAD 190000 LAND 200000 $1.01/CAD 202000 TOTAL ASSETS 2230000 2150500 NOTES PAYABLE 800000 $0.95/CAD 760000 COMMON STOCK 600000 $1/CAD 600000 RETAINED EARNINGS 430000 790500 BALANCING FIGURE TOTAL LIABILITIES 1830000 2150500 SAME AS ASSETSRelated Questions
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