On January 1, Year 4, P Company (a Canadian company) purchased 90% of S Company (located in a foreign country) at a cost of 15,580 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 FC22,000, with a remaining useful life of 10 years. A goodwill impairment loss of FC100 occurred evenly throughout Year 4. 

The following exchange rates were in effect during Year 4:

Jan. 1                                                               FC1 = $1.10

Average for year                                           FC1 = $1.16

When ending inventory purchased           FC1 = $1.1q

Dec. 31                                                            FC1 = $1.22

The statement of financial position of S Company on January 1, Year 4, is as follows:

The December 31, Year 4, financial statements of P Company (in $) and S Company (in FC) are shown below:

Dividends were declared on December 31, Year 4, in the amount of $23,200 by P Company and FC4,100 by S Company.

Required

(a) Prepare the December 31, Year 4, 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 asswne that P Company is a private company. It uses ASPE and has chosen to use the equity method to report its investment in S Company. Calculate the balance in the investment account at December 31, Year 4, assuming that S Company's functional currency is the Canadian dollar. 

(c) Prepare the consolidated financial statements using the worksheet approach for the two scenarios for functional currency. 

Transcribed Image Text:

S Company (FC) Plant and equipment (net) Inventory Monetary assets (current) 20,000 9,100 11,100 40,200 Ordinary shares 10,000 Retained earnings Bonds payable (mature in eight years) Current liabilities 3,650 16,000 10,550 40,200