Question
On December 31, Year 1, Kelly Corporation of Toronto paid 13.20 million Libyan dinars (LYD) for 100% of the outstanding common shares of Arkenu Company
On December 31, Year 1, Kelly Corporation of Toronto paid 13.20 million Libyan dinars (LYD) for 100% of the outstanding common shares of Arkenu Company of Libya. On this date, the fair values of Arkenus identifiable assets and liabilities were equal to their carrying amounts. Arkenus comparative balance sheets and Year 2 income statement are as follows:
BALANCE SHEET | ||||||
At December 31 | ||||||
Year 2 | Year 1 | |||||
Current monetary assets | LYD | 10,946,000 | LYD | 9,620,000 | ||
Inventory | 1,828,000 | 2,406,000 | ||||
Plant and equipment (net) | 6,702,000 | 7,318,000 | ||||
LYD | 19,476,000 | LYD | 19,344,000 | |||
Current monetary liabilities | LYD | 1,930,000 | LYD | 2,418,000 | ||
Bonds payable, due Dec. 31, Year 6 | 4,820,000 | 4,820,000 | ||||
Common shares | 5,020,000 | 5,020,000 | ||||
Retained earnings | 7,706,000 | 7,086,000 | ||||
LYD | 19,476,000 | LYD | 19,344,000 | |||
INCOME STATEMENT | |||
For the year ended December 31, Year 2 | |||
Sales | LYD | 16,066,000 | |
Inventory, Jan. 1 | 2,406,000 | ||
Purchases | 10,868,000 | ||
Inventory, Dec. 31 | (1,828,000 | ) | |
Depreciation expense | 616,000 | ||
Other expenses | 2,423,000 | ||
14,485,000 | |||
Net income | LYD | 1,581,000 | |
Additional Information
- Exchange rates
Dec. 31, Year 1 | LYD1 | = | $0.52 |
Sep. 30, Year 2 | LYD1 | = | $0.62 |
Dec. 31, Year 2 | LYD1 | = | $0.65 |
Average for Year 2 | LYD1 | = | $0.58 |
- Arkenu Company declared and paid dividends on September 30, Year 2.
- The inventories on hand on December 31, Year 2, were purchased when the exchange rate was LYD1 = $0.63.
Required:
(a) Assume that Arkenu's functional currency is the Canadian dollar:
(i) Calculate the Year 2 exchange gain or loss that would result from the translation of Arkenu's financial statements.
(ii) Prepare translated financial statements for Year 2. (Round the values in the "Rate" column 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. Enter answers in whole dollars and not in millions of dollars. Input all other amounts as positive values. Omit currency symbol in your response.)
Income Statement Year 2 | |||||
LYD | Rate | Dollars | |||
Sales | $16,066,000 | $ | |||
Cost of goods sold | 11,446,000 | ||||
Depreciation expense | 616,000 | ||||
Other expenses | 2,423,000 | ||||
Exchange gain Exchange loss | |||||
14,485,000 | |||||
(Click to select) Net income Net loss | $1,581,000 | $ | |||
Retained Earnings Statement Year 2 | |||||
LYD | Rate | Dollars | |||
Bal. Jan. 1 | $7,086,000 | $ | |||
Net income | 1,581,000 | ||||
8,667,000 | |||||
Dividends | 961,000 | ||||
Bal. Dec. 31 | $7,706,000 | $ | |||
Balance Sheet December 31, Year 2 | |||||
LYD | Rate | Dollars | |||
Current monetary assets | $10,946,000 | $ | |||
Inventory | 1,828,000 | ||||
Plant and equipment (net) | 6,702,000 | ||||
$19,476,000 | $ | ||||
Current liabilities | 1,930,000 | $ | |||
Bonds payable | 4,820,000 | ||||
Ordinary shares | 5,020,000 | ||||
Retained earnings | 7,706,000 | ||||
$19,476,000 | $ | ||||
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