In 20X4, HGT Company invested $2,187,500 CDN (875,000FC) to establish a foreign subsidiary, LGC Ltd. LGC took out a $350,000FC bank loan to help finance the purchase of equipment. At the time the loan was taken out, the exchange rate was 1FC = $2.50 CDN. The loan principal is not required to be repaid for five years. LGC purchased equipment and furniture costing 1,050,000FC when the exchange was 1FC = $2.40 CDN.

LGC had a very successful first year of operations and decided to purchase a tract of land for 350,000FC. The exchange rate at the time of purchase was 1FC = $2.00 CDN. LGCs policy is to declare and pay dividends at its year-end. Both HGT and LGC have December 31 year-ends.

LGC has provided the following information: (Statement of Financial Position, Statement of income, Exchange Rates)

1. Calculate LGCs cumulative translation gain/loss for 20X5 using the presentation currency method.

2. Calculate LGCs cumulative translation gain/loss for 20X5 using the functional currency method.

20X5 20X4 Assets: Cash 52,500 280,000 Accounts receivable 70,000 52.500 Land 350,000 Equipment and furniture 1,050,000 1,050,000 Accumulated depreciation (210,000) (105,000) Total assets 1.312.500 1.277.500 Liabilities and shareholders' equity: Liabilities: Accounts payable (current) 17,500 35,000 Bank loan (long-term) 350.000 350,000 Total liabilities 367,500 385,000 Shareholders' equity: Common shares 875,000 875,000 Retained earnings 70.000 17,500 Total shareholders' equity 945,000 892,500 Total liabilities and shareholders' equity 1312.500 1.277.500 20X5 525,000 20X4 385.000 Revenue Expenses Depreciation expense Interest expense Other expenses Total expense Net income 105,000 70,000 210.000 385,000 140.000 105.000 70,000 140,000 315.000 70.000 20X4 average 1FC = $2.30 CDN 20X4 year-end 1FC = $2.10 CDN 20X5 average 1FC = $1.80 CDN 20X5 year-end 1FC = $1.60 CDN 20X5 20X4 Assets: Cash 52,500 280,000 Accounts receivable 70,000 52.500 Land 350,000 Equipment and furniture 1,050,000 1,050,000 Accumulated depreciation (210,000) (105,000) Total assets 1.312.500 1.277.500 Liabilities and shareholders' equity: Liabilities: Accounts payable (current) 17,500 35,000 Bank loan (long-term) 350.000 350,000 Total liabilities 367,500 385,000 Shareholders' equity: Common shares 875,000 875,000 Retained earnings 70.000 17,500 Total shareholders' equity 945,000 892,500 Total liabilities and shareholders' equity 1312.500 1.277.500 20X5 525,000 20X4 385.000 Revenue Expenses Depreciation expense Interest expense Other expenses Total expense Net income 105,000 70,000 210.000 385,000 140.000 105.000 70,000 140,000 315.000 70.000 20X4 average 1FC = $2.30 CDN 20X4 year-end 1FC = $2.10 CDN 20X5 average 1FC = $1.80 CDN 20X5 year-end 1FC = $1.60 CDN