Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Dove Corporation of Toronto acquired 100% of the outstanding common shares of Astral company of Libya on January 1 of Year 7. On this date,

Dove Corporation of Toronto acquired 100% of the outstanding common shares of Astral company of Libya on January 1 of Year 7. On this date, the fair values of Astral company's identifiable assets and liabilities were equal to their carrying amounts. Astrals financial statements for the year ended December 31, Year 9 are presented as follows:

BALANCE SHEET
At December 31, Year 9
Cash and cash equivalents LYD 862,500
Accounts receivable 751,500
Inventory 899,500
Plant and equipment (net) 1,601,500
LYD 4,115,000
Accounts payable LYD 806,500
Notes payable 201,500
Common shares 1,001,500
Retained earnings 2,105,500
LYD 4,115,000

INCOME STATEMENT
For the year ended December 31, Year 9
Sales LYD 6,207,500
Inventory, Jan. 1 1,422,500
Purchases 3,939,500
Inventory, Dec. 31 (899,500)
Depreciation expense 201,500
Other expenses 505,500
5,169,500
Profit LYD 1,038,000

Additional Information

  • Exchange rates
January 1, Year 7 LYD1 = $0.74
January 1, Year 8 LYD1 = $0.52
Average for Year 8 LYD1 = $0.54
Sep. 30, Year 9 LYD1 = $0.62
Dec. 31, Year 9 LYD1 = $0.65
Average for Year 9 LYD1 = $0.58
  • Astral Company declared and paid dividends on September 30, Year 9.
  • The inventories on hand on December 31, Year 9, were purchased when the exchange rate was LYD1 = $0.63.
  • All inventory on hand at the beginning of Year 9 were purchased evenly in Year 8.
  • The plant and equipment were purchased on January 1, Year 8 and are being amortized on a straight line basis over its estimated useful life of 10 years.
  • All sales and purchases and other expenses occurred evenly throughout the year.
  • On January 1, Year 9, the retained earnings of Astral Company was LYD 1,964,500 which amounted to $1,041,500 Canadian dollars.

Required:

(a) Assume that Astrals functional currency is the Canadian dollar, prepare translated financial statements for Year 9. (Hint: Prepare the balance sheet first and your retained earnings number will be a plug. Use the translated retained earnings to prepare the retained earnings statement and your profit figure will be a plug.) (Round the Rate answers to 2 decimal places. Exchange gain, if any, should be entered as positive value, and Exchange loss, if any, should be entered with a minus sign. Input all other amounts as positive values. Omit currency symbol in your response.)

Balance Sheet - December 31, Year 9
Cash and cash equivalents LYD 862,500 $
Accounts receivable 751,500
Inventory 899,500
Plant and equipment (net) 1,601,500
LYD 4,115,000 $
Accounts payable LYD 806,500 $
Notes payable 201,500
Common shares 1,001,500
Retained earnings 2,105,500 Plug
LYD 4,115,000 $

Retained Earnings Statement Year 9
Bal. Jan. 1 LYD 1,964,500 given $
Net income 1,038,000 plug
3,002,500
Dividends 897,000
Closing retained earnings LYD 2,105,500 B/S above $

Income Statement - Year 9
Sales LYD 6,207,500 $
Cost of goods sold 4,462,500 Note 1
Depreciation expense 201,500
Other expenses 505,500
(Click to select) Exchange gain Exchange loss
5,169,500
(Click to select) Net income Net loss LYD 1,038,000 $

(b) Assume that Astrals functional currency is the Libyan dinar, prepare translated financial statements for Year 9 if the translated retained earnings at January 1, Year 9 under the presentation currency translation method is $1,231,500 Canadian dollars and there was no prior balance in Accumulated Other Comprehensive Income. (Hint: Prepare the income statement first and then the statement of retained earnings. Use the translated retained earnings to prepare the balance sheet and the exchange gain or loss in OCI will be a plug.) (Round the Rate answers to 2 decimal places. Exchange gain, if any, should be entered as positive value, and Exchange loss, if any, should be entered with a minus sign. Input all other amounts as positive values. Omit currency symbol in your response.)

Income Statement - Year 9
Sales LYD 6,207,500 $
Cost of goods sold 4,462,500
Depreciation expense 201,500
Other expenses 505,500
5,169,500
(Click to select) Net income Net loss LYD 1,038,000 $

Retained Earnings Statement Year 9
Bal. Jan. 1 LYD 1,964,500 given $
Net income 1,038,000
3,002,500
Dividends 897,000
Closing retained earnings LYD 2,105,500 B/S above $

Balance Sheet - December 31, Year 9
Cash and cash equivalents LYD 862,500 $
Accounts receivable 751,500
Inventory 899,500
Plant and equipment (net) 1,601,500
LYD 4,115,000 $
Accounts payable LYD 806,500 $
Notes payable 201,500
Common shares 1,001,500
Retained earnings 2,105,500 From RE
(Click to select) OCI - Exchange gain OCI - Exchange loss Plug
LYD 4,115,000 $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Accounting

Authors: Edward B. Deakin, Michael Maher

3rd Edition

0256069190, 978-0256069198

More Books

Students also viewed these Accounting questions

Question

Under what circumstances are pay differentials justified?

Answered: 1 week ago