ACT504: Financial Accounting and Reporting

HK Co acquired a 90% interest in Mainland Co on January 1, 2019 for HK $400,000, when the exchange rate was RMB 1=HK$1.18. At that date, all the identifiable assets and liabilities of Mainland Co reflected their fair values and its stockholders' equity consisted of RMB500,000 capital stock and RMB300,000 retained earnings. HK Co made a RMB50,000 long-term noninterest-bearing loan to Mainland Co (denominated as HK\$56,000) on January 2, 2019 when the exchange rate was RMB1=HK $1.12. Mainland Co is self-efficient and is not dependent on HK Co for financing. The 2019 trial balance of Mainland Co prepared in RMB showed the following information: Sales and purchases of inventory occurred evenly throughout the year. The spot rate for dividend was RMB1 =HK$1.13. Other exchange rates for 2019 are as follows: Required: 1) Prepare a translation worksheet to convert Mainland Co's 2019 trial balance into HK dollars. (24 marks) 2) Verify the translation adjustment in part 1). (7 marks) 3) Explain whether the RMB50,000 loan is a foreign currency transaction for Mainland Co. If yes, calculate the exchange gain/loss on this loan for Mainland Co, provide a journal entry to record this gain (loss) on its book, and explain where and how much (in HK\$) this gain (loss) should be reported in the consolidated financial statements. ( 9 marks)