On January 1, 20X1. Par Company purchased all the outstanding stock of North Bay Company, located in Canada, for \(\$ 120.000\). On January 1, 20X1, the direct exchange rate for the Canadian dollar ( \(\mathrm{C} \$\) ) was \(\mathrm{C} \$ 1=\$ .80\). The book value of North Bay Company on January 1, 20X1, was C \(\$ 90,000\). The fair value of North Bay's plant and equipment was C \(\$ 10,000\) greater than book value, and the plant and equipment is being depreciated over 10 years, with no salvage value. The remainder of the differential is attributable to a trademark which will be amortized over 10 years.

During 20X1. North Bay Company earned \(\mathbf{C} \$ 20,000\) in income and declared and paid \(\mathrm{C} \$ 8,000\) in dividends. The dividends were declared and paid in Canadian dollars when the exchange rate was \(C \$ 1=\$ .75\). On December \(31,20 X 1\), Par Company continues to hold the Canadian currency received from the dividend. On December 31, 20X1, the direct exchange rate is \(\mathbf{C \$ 1}=\$ .70\). The average exchange rate during \(20 \mathrm{X} 1\) was \(\mathbf{C} \$ 1=\$ .75\). Management has determined that the Canadian dollar is the appropriate functional currency for North Bay Company.

\section*{Required}

a. Prepare a schedule showing the differential allocation and amortization for 20X1. The schedule should present both Canadian dollars and U.S. dollars.

b. Par Company uses the basic equity method to account for its investment. Provide the entries that Par Company would record in 20X1 for its investment in North Bay Company for the following items:

(1) Purchase of investment in North Bay Company.

(2) Equity accrual for Par's share of North Bay`s income.

(3) Recognition of dividend declared and paid by North Bay Company.

(4) Amortization of differential.

(5) Recognition of translation adjustment on differential.

c. Prepare a schedule showing the proof of the translation adjustment for North Bay Company as a result of the translation of the subsidiary's accounts from Canadian dollars to U.S. dollars. Then provide the entry that Par Company would record for its share of the translation adjustment resulting from the translation of the subsidiary's accounts.

d. Provide the entry required by Par Company to restate the C \(\$ 8,000\) in the Foreign Currency Units account into its year-end U.S. dollar equivalent value.