Par Corporation, a Canadian company, purchased 80% of the outstanding shares of Sub Company of Germany on December 31, Year 5 for 3,000,000 Euros. At that date, the carrying values of Subs assets and liabilities were equal to fair values. There was a goodwill impairment loss in Year 6 of 10,000. The fiscal Year 5 financial statements of Sub were as follows: Sub Company Balance Sheet December 31, Year 5 Cash 500,000 Accounts receivable 900,000 Inventory 1,200,000 Capital assets (net) 3,250,000 5,850,000 Accounts payable 650,000 Bonds payable 1,700,000 Common shares 2,000,000 Retained earnings 1,500,000 5,850,000 Par anticipated that there would be a high volume of intercompany transactions with Sub, because Par provides the raw materials to Sub and sales are global. Also Sub obtained most of its financing thru banks in Canada. Par uses the cost method to account for its investment in Sub. The fiscal Year 6 financial statements of Par and Sub were as follows: Balance Sheets December 31, Year 6 Par Sub Cash $ 450,000 400,000 Accounts receivable 615,000 950,000 Inventory 1,235,000 1,500,000 Investment in Sub 800,000 Capital assets (net) 3,800,000 3,500,000 $ 6,900,000 6,350,000 Accounts payable $ 400,000 900,000 Bonds payable 500,000 1,700,000 Common shares 3,050,000 2,000,000 Retained earnings 2,950,000 1,750,000 $ 6,900,000 6,350,000

453 A62023W1 Statements of Income and Retained Earnings For the year ended December 31, Year 6 Par Sub Sales $ 3,000,000 5,010,000 Other income 120,000 3,120,000 5,010,000 Cost of goods sold 1,800,000 3,200,000 1,320,000 1,810,000 Selling and administrative 550,000 510,000 Depreciation exp. 300,000 185,000 Other expenses 70,000 365,000 920,000 1,060,000 Net income 400,000 750,000 Retained earnings, January 16 2,650,000 1,500,000 3,050,000 2,250,000 Dividends 100,000 500,000 Retained earnings, December 316 $ 2,950,000 1,750,000 Additional information: 1. Opening and ending inventory were purchased evenly over the 4th quarter of Year 5 and evenly over the 4th quarter of Year 6, respectively. 2. Foreign exchange rates were as follows: January 1, Yr 1 1 = C$0.180 Average during 4th quarter of Yr 5 1 = C$0.195 December 31, Yr 5 1 = C$0.210 Average during Yr 6 1 = C$0.220 Average during 4th quarter of Yr 6 1 = C$0.232 December 10, Yr 6 1 = C$0.230 December 31, Yr 6 1 = C$0.241 3. Dividends for both companies were declared and paid on December 10, Year 6. 4. Ignore income taxes for purposes of this question. Required: a. Should the operations of Sub be accounted for as an integrated subsidiary (i.e. functional currency is Canadian dollars) or as a self-sustaining foreign operation (i.e. functional currency is French francs) from the perspective of Par? Provide two pieces of evidence to support your answer. (1.5 marks) b. Ignore your answer to part (a), and assume self-sustaining relationship (functional currency is Euros). Calculate the translated comprehensive income (3.5 marks)

453 A62023W1 c. Ignore your answer to part (a), and assume self-sustaining relationship (functional currency is Euros). Prepare the calculation for goodwill that would appear on the consolidated balance sheet at December 31, Year 6. Also prepare the calculation for the exchange gain/loss on the translation of goodwill that would be included in accumulated other comprehensive income (AOCI). (3.5 marks) d. Ignore your answer to part (a), and assume self-sustaining relationship (functional currency is Euros). Prepare account balances for the liabilities and shareholders equity portion of the consolidated balance sheet at December 31, Year 6. Your answer should include detailed calculations of consolidated RE, accumulated other comprehensive income and non controlling interest. (9.5 marks) Hint: Total liabilities and equity $7,858,190 e. Ignore your answers above, and assume an integrated relationship (i.e. functional currency is Canadian dollars). Assume the subsidiary purchased a capital asset for 435,000 on January 1, Year 6 when the rate was 0.21.