Exercise 7.4: Translation and Remeasurement Gain and Loss

Costco Canada Holdings is a Canadian subsidiary of Costco Wholesale Corporation, a U.S. company. Assume that the following data relate to Costco Canada's activities for 2020 (in millions)

Net monetary assets (liabilities), January 1, 2020 C$ 700

Acquisition of plant assets for debt, February 15, 2020 $ 1,000

Purchase of inventory made evenly during 2020 $ 3,500

Collection of receivables outstanding at January 1, 2020 $ 2,700

Sales made evenly during 2020 $ 6,000 Cost of goods sold $ 3,300

Depreciation of assets acquired when the exchange rate was $ 0.85/C$ $ 400

Current operating expenses (excluding depreciation and

amortization incurred evenly during 2020 $ 1,200

Refinancing or "rollover" of commercial paper $ 800

Exchange rates (S/C$) during 2020 are:

January 1, 2020 $ 0.80

Average for 2020 $ 0.75

February 15, 2020 $ 0.78

December 31, 2020 $ 0.72

Required:

a.Assuming Costco Canada's functional currency is the U.S. dollar, prepare schedule to compare the remeasurement gain or loss for 2020.

b. Assuming Costco Canada's functional currency is the Canadian dollar, prepare schedule to compute the translation gain or loss for2020. Assume net assets on January 1, 2020, amounted to C$ 1,200 million.