Question
Q3 Foreign currency translation A: 20 marks On January 1, 2020, in an effort to diversify, Bauman Corp. (a Canadian company that sells decorative cedar
Q3 Foreign currency translation A: 20 marks
On January 1, 2020, in an effort to diversify, Bauman Corp. (a Canadian company that sells decorative cedar branches), purchased 80% of Noskova Inc, an American company that manufacturers nitrous oxide, for US$50,000.
Noskovas 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. Noskovas 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 Bauman (in Canadian dollars) and Noskova (in U.S. dollars) are shown below:
Balance Sheets
| Bauman | Noskova |
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 |
Translate Noskovas 2020 Income Statement into Canadian dollars if the functional currency is the Canadian dollar (i.e. the same functional currency as the parent).
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