On January 1, Year 1, P Company (a Canadian company) purchased 90% of S Company (located in a foreign country) at a cost of 14,400 foreign currency units (FC). The carrying amounts of S Company€™s net assets were equal to fair values on this date except for plant and equipment, which had a fair value of FC 22,000, with a remaining useful life of 10 years. A goodwill impairment loss of FC100 occurred evenly throughout Year 1.
The following exchange rates were in effect during Year 1:
Jan. 1 ................ FC1 = $1.10
Average for year ........ FC1 = $1.16
When ending inventory purchased ... FC1 = $1.19
Dec. 31 .............. FC1 = $1.22
The statement of financial position of S Company on January 1, Year 1, is as follows:
S Company (FC)
Plant and equipment (net) ...... 20,000
Inventory ........... 8,000
Monetary assets (current) ..... 10,000
38,000
Ordinary shares ......... 10,000
Retained earnings ........ 3,000
Bonds payable (mature in eight years). 16,000
Current liabilities ......... 9,000
38,000
The December 31, Year 1, financial statements of P Company (in $) and S Company (in FC) are shown below:

Dividends were declared on December 31, Year 1, in the amount of $22,000 by P Company and FC 4,000 by S Company.
Required:
(a) Prepare the December 31, Year 1, consolidated financial statements, assuming that S Company€™s functional currency is each of the following:
(i) The Canadian dollar
(ii) The foreign currency unit
(b) Now assume that P Company is a private company. It uses ASPE and has c hosen to use the equity method to report its investment in S Company. Calculate the balance in the investment account at December 31, Year 1, assuming that S Company€™s functional currency is the Canadian dollar.

Transcribed Image Text:

STATEMENT OF FINANCIAL POSITION P Company S Company FC 18,000 Plant and equipment (net) Investment in S Company (at cost) Inventory Monetary assets (current) 60,000 15,840 30,000 31,552 137,392 11,000 17,000 46,000 Ordinary shares Retained earnings Bonds payable Current monetary liabilities 30,000 41,392 40,000 26,000 137,392 10,000 8,000 16,000 12,000 46,000 INCOME STATEMENT P Company S Company FC Sales Dividend income Cost of sales Other expenses (including depreciation) 360,000 4,392 (180,000) 155,000) 29,392 100,000 (59,000) 32,000) 9,000 Profit