Dom Ltd., a private Canadian company, has a subsidiary, Tarzan Inc., in a country that uses the tar (Tz) as its currency. Before this 100%-owned subsidiary can be consolidated, the financial statements must be translated from tars to Canadian dollars. However, the person responsible for the translation has quit suddenly and left you with a half-finished job. Certain information is available but you must determine the rest.
TARZAN INC. FINANCIAL STATEMENTS (IN Tz)
at December 31, Year 4
Land ..................... Tz 500,000
Buildings (Note 1) ............... 800,000
Accumulated depreciation ............ (300,000)
Inventory (Note 2) ................ 400,000
Accounts receivable ................ 200,000
Cash ..................... 100,000
Tz 1,700,000
Ordinary shares ................ Tz 300,000
Retained earnings ................ 750,000
Note payable (Note 3) ................ 400,000
Accounts payable ................ 250,000
Tz 1,700,000
Sales ...................... Tz 5,200,000
Cost of goods sold ................ 3,100,000
2,100,000
Other expenses (including depreciation of 80,000) .... (1,950,000)
Profit ...................... Tz 150,000
Additional Information
1. There were two buildings and one piece of land. The land and building 1 (Tz 300,000) were acquired when Dom formed Tarzan. The exchange rate at that time was $1 = Tz2. Building 2 was acquired when the exchange rate was
$1 = Tz3.2. The depreciation expense is proportional to the purchase prices.
The accumulated depreciation relating to Building 2 is Tz 200,000.
2. The opening inventory was Tz 500,000, and the purchases during the period were Tz 3,000,000. Tarzan uses a periodic FIFO inventory system. The opening inventory had an exchange rate of $1 = Tz 3.5, and the purchases were made 30% from the parent and 70% from the local area. The local area purchases were made evenly throughout the year; the purchases from the parent were recorded by the parent at $232,558. The ending inventory was purchased when the exchange rate was $1 = Tz4.
3. The note payable, which is due on January 1, Year 8, was created on July 1, Year 4.
4. The retained earnings at January 1, Year 4, translated into $181,818.
5. The other expenses were incurred evenly throughout the year.
6. No dividends were declared during the year.
7. Exchange rates:
Jan. 1, Year 4 ............ $1 5 Tz3.7
2004 average, July 1, Year 4 ...... $1 5 Tz3.9
Dec. 31, Year 4 .......... $1 5 Tz4.1
Required:
(a) Assume that Tarzan is an integrated foreign operation. Prepare the financial statements of Tarzan in Canadian dollars. Show your calculations in good form.
(b) If the net realizable value of the ending inventory was Tz 350,000, what would the Canadian-dollar value of the inventory be? Assume all the other information given in the question remains constant.