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On January 1, 20X1, Par Company purchased all the outstanding stock of South Bay Company, located in Canada, for $129,600. On January 1, 20X1, the
On January 1, 20X1, Par Company purchased all the outstanding stock of South Bay Company, located in Canada, for $129,600. On January 1, 20X1, the direct exchange rate for the Canadian dollar (C$) was C$1 = $0.81. South Bay's book value on January 1, 20X1, was C$92,000. The fair value of South Bay's plant and equipment was C$9,700 more than book value, and the plant and equipment are being depreciated over 10 years with no salvage value. The remainder of the differential is attributable to a trademark, which will be amortized over 10 years. During 20X1, South Bay earned C$30,000 in income and declared and paid C$8,700 in dividends. The dividends were declared and paid in Canadian dollars when the exchange rate was C$1 = $0.75. On December 31, 20X1, Par continues to hold the Canadian currency received from the dividend. On December 31, 20X1, the direct exchange rate is C$1 = $0.64. The average exchange rate during 20x1 was C$1 = $0.76. Management has determined that the Canadian dollar is South Bay's appropriate functional currency. Required: a. Prepare a schedule showing the differential allocation and amortization for 20X1. The schedule should present both Canadian dollars and U.S. dollars. (Amounts to be deducted should be entered with a minus sign. Round "Exchange Rate" answers to 2 decimal places and rest of answers to nearest whole dollar.) Investment cost Book value of investment on January 1, 20X1 Differential Canadian Dollars cp $ 160,000 92,000 68,000 Exchange Rate 0.81 0.81 U.S. Dollars $ 129,600 74,520 $ 55,080 Exchange Rate Canadian Dollars Plant and equipment Trademark U.S. Dollars Plant and Trademark equipment C $ 58,300 47,223 9,700 cl $ (970) Income Statement: Differential at date of acquisition: Amortization this period: (10 years) Remaining balance: Balance Sheet: Remaining balance on 12/31/X1 translated at year-end exchange rates: Difference to ocltranslation adjustment: 0.81 $ 0.76 $ 7,857 $ (737) 7,120 $ 47,223 This is a numeric cell, so please enter numbers only. cl$ 0.64 5,587 1,533 37,312 9,911 $ $ b. Par uses the fully adjusted equity method to account for its investment. Provide the entries that it would record in 20x1 for its investment in South Bay for the following items: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to nearest whole dollar.) View transaction list View journal entry worksheet Debit Credit No A Event 1 General Journal Investment in South Bay Company L 129,600 Cash 129,600 Investment in South Bay Company 22,800 Income from South Bay Company 22,800 6,525 Foreign currency units (C$) Investment in South Bay Company 6,525 Income from South Bay Company Investment in South Bay Company Other comprehensive income - Translation adjustment Investment in South Bay Company
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