Question
On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000. Martin's book values approximated its fair
On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an
American company, for US$50,000.
Martin's book values approximated its fair values on that date except for plant and equipment,
which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill
impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is
shown below (in U.S. dollars):
Current Monetary Assets $50,000
Inventory $40,000
Plant and Equipment $25,000
Total Assets $115,000
Current Liabilities $45,000
Bonds Payable (maturity: January 1, 2026) $20,000
Common Shares $30,000
Retained Earnings $20,000
Total Liabilities and Equity $115,000
The following exchange rates were in effect during 2020:
January 1, 2020: US $1 = CDN $1.3250
Average for 2020: US $1 = CDN $1.3350
Date when Ending Inventory Purchased: US $1 = CDN $1.34
December 31, 2020: US $1 = CDN $1.35
Sales, purchases and other expenses occurred evenly throughout the year.
Dividends declared and paid December 31, 2020.
The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown
below:
Balance Sheets
Larmer Martin
Current Monetary Assets $42,050 $65,000
Inventory $60,000 $50,000
Plant and Equipment $23,500 $20,000
Investment in Martin (at Cost) $66,250
Assets $191,800 $135,000
Current Liabilities $50,000 $48,000
Bonds Payable (maturity: January 1, 2026) $35,000 $20,000
Common Shares $60,000 $30,000
Retained Earnings $30,000 $20,000
Net Income $28,800 $27,000
Dividends ($12,000) ($10,000)
Liabilities and Equity $191,800 $135,000
Income Statements Larmer Martin
Sales $80,000 $50,000
Dividend Income $10,800
Cost of Sales ($40,000) ($15,000)
Depreciation ($10,000) ($5,000)
Other expenses ($12,000) ($3,000)
Net Income $28,800 $27,000
Calculate Larmer's Consolidated Net Income for 2020 if Martin's functional currency is the U.S.
dollar (i.e., the functional currency of the foreign subsidiary is different than the parent's
functional currency).
a) Calculation of Consolidated Net Income 2020
b) Calculation of Acquisition Differential (U.S. $)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
College Accounting A Contemporary Approach
Authors: David Haddock, John Price, Michael Farina
4th edition
978-1259995057, 1259995054, 978-0077503987, 77503988, 978-0077639730
