PROBLEM 13-5 Temporal Method Pasquale Company is a manufacturer of oil drilling equipment located in Canada. The company is 90% owned by a U.S. parent company. The accounting department of Pasquale Company accumulated the following 2014 information for the companys auditor. Equipment: 1. The equipment account contained the following items: Cost Useful Exchange Rate on Description (Can. $) Life Acquisition Date Acquisition Date Drill press 30,000 5 years July 15, 2010 $.8430 Stamping press 80,000 4 years January 2, 2012 .7360 Fork lift 42,000 6 years September 1, 2013 .6998 2. Pasquale Company depreciates assets by the straight-line method and assumes a zero residual value. 3. Its policy is to take a full years depreciation on all depreciable assets acquired before July 1 and no depreciation on all depreciable assets required after July 1. Inventory: 1. The beginning inventory of 60,000 Canadian dollars was acquired during the last quarter of 2013. 2. Inventory purchases of 400,000 Canadian dollars were made uniformly during the year. 3. The ending inventory of 60,000 Canadian dollars was acquired during November and December, 2014. Marketable Securities: 1. Marketable securities, carried at cost, were acquired for 30,000 Canadian dollars when the direct exchange rate was $.9320. Direct Exchange Rates: Average for the last quarter of 2013, $.7322 January 1, 2014, $.7080 Average for November and December, 2014, $.6845 Average for 2014, $.7140 December 31, 2014, $.6960 Required: A. Compute the account balances that would be reported for equipment, inventory, and marketable securities in the December 31, 2014, balance sheet expressed in U.S. dollars, assuming that the temporal method was used to translate the accounts. B. Compute the depreciation expense and cost of goods sold for 2014 in U.S. dollars, assuming that the temporal method was used to translate the accounts. C. Repeat requirements A and B, assuming that the current rate method was used to translate the accounts. D. Contrast the effects on income from using the current rate method and the temporal method to translate cost of goods sold and depreciation expense. Explain why net income is increased or decreased when the accounts were translated using the current rate method.