Question
In 2015, Corbus Co., a Canadian company, created a foreign subsidiary called Snazzy Ltd. by investing $2,000,000 CAD (800,000 FC) in return for all of
In 2015, Corbus Co., a Canadian company, created a foreign subsidiary called Snazzy Ltd. by investing $2,000,000 CAD (800,000 FC) in return for all of Snazzys common shares. In preparing to start operations, Snazzy acquired equipment for 960,000 FC and took out a 320,000 FC loan. Snazzy is committed to repaying the loan in 3 years. In 2016, Snazzy acquired a tract of land for 320,000 FC. All dividends were paid on December 31 of the years in which they were declared.
Snazzys financial statements for its first 2 years of operations are presented below.
Snazzy Ltd.
Statement of Financial Position
As of December 31
(in FC)
2016 2015
Assets:
Current assets:
Cash $ 48.000 $ 256,000
Accounts receivable 64,000 48,000
112,000 304,000
Noncurrent assets:
Land 320,000 -
Equipment 960,000 960,000
Accumulated amortization (192,000) (96,000)
1,088,000 864,000
Total assets $ 1,200,000 $ 1,168,000
Liabilities and shareholders equity:
Current liabilities:
Accounts payable 16,000 32,000
Noncurrent liabilities:
Loan payable 320,000 320,000
336,000 352,000
Shareholders equity:
Share capital 800,000 800,000
Retained earnings _64,000 _16,000
864,000 816,000
Total liabilities and shareholders equity $ 1,200,000 $ 1,168,000
Snazzy Ltd.
Statement of Comprehensive Income
For the year ended December 31
(in FC)
2016 2015
Revenue $ 480,000 $ 352,000
Expenses:
Amortization 96,000 96,000
Interest 64,000 64,000
Other expenses 192,000 128,000
352,000 288,000
Net and comprehensive income $ 128,000 $ 64,000
Snazzy Ltd.
Statement of Changes in Equity Retained Earnings Section
For the year ended December 31
(in FC)
2016 2015
Retained earnings, beginning of year $ 16,000 $ -
Net income 128,000 64,000
Dividends declared (80,000) (48,000)
Retained earnings, end of year $ 64,000 $ 16,000
Selected exchange rates
when the equipment was purchased 1FC = $2.30 CAD
when the loan was negotiated 1FC = $2.40 CAD
when the land was purchased 1FC = $1.90 CAD
average during 2015 1FC = $2.20 CAD
December 31, 2015 1FC = $2.00 CAD
Average during 2016 1FC = $1.70 CAD
December 31, 2016 1FC = $1.50 CAD
Required:
Assume that Snazzy's functional currency is the FC.
i) Translate Snazzy's 2015 financial statements using the appropriate method.
ii) Independently calculate the translation gain/loss.
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