Question
On December 31, Year 1, Kelly Corporation of Toronto paid 14.10 million Libyan dinars (LYD) for 100% of the outstanding common shares of Arkenu Company
On December 31, Year 1, Kelly Corporation of Toronto paid 14.10 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 | 11,693,000 | LYD | 9,710,000 | ||
Inventory | 1,954,000 | 2,433,000 | ||||
Plant and equipment (net) | 7,161,000 | 7,399,000 | ||||
LYD | 20,808,000 | LYD | 19,542,000 | |||
Current monetary liabilities | LYD | 2,065,000 | LYD | 2,445,000 | ||
Bonds payable, due Dec. 31, Year 6 | 4,910,000 | 4,910,000 | ||||
Common shares | 5,110,000 | 5,110,000 | ||||
Retained earnings | 8,723,000 | 7,077,000 | ||||
LYD | 20,808,000 | LYD | 19,542,000 | |||
INCOME STATEMENT | |||
For the year ended December 31, Year 2 | |||
Sales | LYD | 16,318,000 | |
Inventory, Jan. 1 | 2,433,000 | ||
Purchases | 10,994,000 | ||
Inventory, Dec. 31 | (1,954,000 | ) | |
Depreciation expense | 238,000 | ||
Other expenses | 938,000 | ||
12,649,000 | |||
Net income | LYD | 3,669,000 | |
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 Libyan dinar:
(i) Calculate the Year 2 exchange gain or loss that would result from the translation of Arkenu's financial statements. (Enter answers in whole dollars and not in millions of dollars. Input all amounts as positive value. Omit currency symbol in your response.)
(Click to select) Exchange gain Exchange loss $
(ii) Prepare translated financial statements for Year 2. (Round the values in the "Rate" column to 2 decimal places. Loss amounts should be indicated 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 | 16,318,000 | $ | ||
Cost of goods sold | 11,473,000 | |||
Depreciation expense | 238,000 | |||
Other expenses | 938,000 | |||
12,649,000 | ||||
Net income | 3,669,000 | |||
Other comprehensive (Click to select) income loss unrealized exchange (Click to select) gain loss | ||||
(Click to select) Comprehensive loss Comprehensive income | $ | |||
Retained Earnings Statement Year 2 | |||||
LYD | Rate | Dollars | |||
Bal. Jan. 1 | 7,077,000 | $ | |||
Net income | 3,669,000 | ||||
10,746,000 | |||||
Dividends | 2,023,000 | ||||
Bal. Dec. 31 | 8,723,000 | $ | |||
Balance Sheet December 31, Year 2 | |||||
LYD | Rate | Dollars | |||
Current monetary assets | 11,693,000 | $ | |||
Inventory | 1,954,000 | ||||
Plant and equipment (net) | 7,161,000 | ||||
20,808,000 | $ | ||||
Current monetary liabilities | 2,065,000 | ||||
Bonds payable | 4,910,000 | ||||
Common shares | 5,110,000 | ||||
Retained earnings | 8,723,000 | ||||
Accumulated foreign exchange adjustments | |||||
20,808,000 | $ | ||||
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