Question
On January 1, 20X1, Par Company purchased all the outstanding stock of North Bay Company, located in Canada, for $137,700. On January 1, 20X1, the
On January 1, 20X1, Par Company purchased all the outstanding stock of North Bay Company, located in Canada, for $137,700. On January 1, 20X1, the direct exchange rate for the Canadian dollar (C$) was C$1 = $0.81. North Bays book value on January 1, 20X1, was C$94,000. The fair value of North Bays plant and equipment was C$9,200 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, North Bay earned C$16,000 in income and declared and paid C$7,700 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 North Bays 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.)
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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 North 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.)
Record the acquisition of North Bay Company. Record the equity in income of the subsidiary. Record the dividend from the foreign subsidiary. Record the amortization of the differential. Record the entry to recognize the translation adjustment on the differential
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Record the parent's share (100%) of the translation adjustment from the translation of the subsidiary's accounts on December 31, 20X1
d. | Provide the entry required by Par to restate the C$7,700 in the Foreign Currency Units account into its year-end U.S. dollarequivalent value. (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.) Record the exchange loss on the foreign currency units held on December 31, 20X1 |
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