Question 1(34 marks) A- Assume that a French corporation exports electronic equipment to USA in a transaction denominated in dollar Is this transaction a foreign currency transaction? Is it a foreign transaction? Explain the difference between these two concepts and their application here (5 marks) B- The unrealized gains and losses from intercompany transactions involving plant assets might be eventually realized. Does it make any difference if these assets are depreciable non-depreciable? Explain. marks) or 3. C-On January 1, 2019 Porto Corporation paid $81,000 for a 90% interest in Sardinia Corporation. On that date Sardinia capital stock was $50,000 and its Retained Earnings was $15.000. Any excess will be assigned to goodwill Further information: 1. During 2019. Porto's sales to Sardinia were $24.000. Sardinia managed to sell 50% of this merchandise. (The other half was sold in 2020.) 2. During 2020, Porto's sales to Sardinia were $30,000 of which Sardinia managed to sell 40% of this merchandise. At year-end 2020, Sardinia owed Porto $7,500 for the inventory purchased during 2020. Porto sells merchandise to Sardinia at 120% of Porto's cost. On January 1, 2020, Porto sold equipment with book value of $10,000 and a remaining useful life of four years and no salvage value to Sardinia for $14,000 Straight-line depreciation is used. Sardinia's income for 2019 was $20,000 and Sardinia's dividends received by Porto was $9,000 5. Separate company financial statements for Porto Corporation and Subsidiary at December 31, 2020 are summarized in the first two columns of the consolidation working papers. Required: 1) Prepare all elimination entries in 2020 (Including the entries not affecting the consolidated Income statement). Show all your calculations 2) Complete the working papers to consolidate the financial statements of Porto Corporation and subsidiary for the year ended December 31, 2020: Porto Sardinia Eliminations Consolidated Debul Credit INCOME STATEMENT Sales Income from Sardinia s 300,000 $70,000 23,000 Gain on equipment sale 14.000 Cost of Sales ( 130,000 22,000) 140,000)|(18,000) Other Expenses Noncontrolling interest share Net income Retained Earnings 1/1 IS 57,000 S 30.000 $ 47,500 $ 25,000 Add: Net income $7,000 30,000 Dividends 35,000) 10,000) Retained Earnings 12/31 $ 69,500 $ 45,000 BALANCE SHEET Cash $ 27,500 $ 15.000 Receivables 35,000 20,000 Inventories 50,000 22.500 Equipment-net 120.000 45.000 Land 20,000 17.500 Investment in Sardinia 102.000 S 354,500 $120,000 Goodwill TOTAL ASSETS LIAB. & EQUITY Accounts payable Capital Stock Retained Earnings 1/1 Nonentel Interest S 35,000 S 25.000 250.000 50,000 169,500 45,000 12/31 Noncntrl. Interest TOTAL LIAB & EQUITIES S 354,500 $120,000 Question 2 (34.5 marks) A- The income statement of Panama Corporation showed a net income of $3,500,000 for the year ended December 31, 2020. before recording any income from its 85% owned subsidiary; Salgado. The income statement of Salgado for 2020 showed a net income of $700,000. During 2020, an intercompany sale of a truck resulted in a gain of $35,000, and the truck was assumed to have a four-year remaining useful life with no residual value. The truck is depreciated on a Straight-line basis. Required: 1. Calculate Panama's consolidated net income for 2020, and controlling share of consolidated net income for 2020, assuming it was a downstream sale, 2. Calculate Panama's consolidated net income for 2020, and controlling share of consolidated net income for 2020, assuming it was an upstream sale 3. Comment on the results, to indicate the difference between downstream sale and upstream sale. (12 Marks) B- Penguin Enterprises owns 75% of the outstanding voting stock of Seagull, which was purchased in 2001 at a cost equal to 75% of the book value of Seagull 's net assets (At that date, the fair value and book value of Seagull 's net assets were equal.) Separate company income statements accounts for Penguin and Seagull for the year ended December 31, 2020 are summarized as follows: Penguin Seagull Sales Revenue $6,000,000 $2,000,000 Cost of Goods Sold (4,000,000) (1,000,000) Expenses (1.125,000) (500,000) During 2020, the companies agreed to sell inventory to each other as needed at a markup of 10% of cost. Penguin sold merchandise that cost $250,000 to Seagull for $275,000, and Seagull sold inventory that cost $200,000 to Penguin for $220,000. Half of this merchandise remained in each company's inventory at December 31, 2020. Required: Determine Penguin's income from Seagull for 2020. 2. Prepare a consolidated income statement for Penguin Corporation and Subsidiary for 2020. C- The following import and export transactions relate to Nour Corporation (a U.S. company) and its unaffiliated Mexican companies: November 11, 2019 Purchased inventory for 150,000 pesos on account. Invoice denominated in pesos. November 30, 2019 Sold 60% of inventory acquired on 11/11/19 for 120,000 pesos on account. Invoice denominated in pesos. January 5, 2020 Acquired and paid the 150,000 pesos owed to the Mexican supplier. January 15, 2020 Collected the 120,000 pesos from the Mexican customer and immediately converted them into U.S. dollars. The following exchange rates apply: Date Rate November 11 $.11 = 1 peso November 30 $.12 = 1 peso December 31 $.13 = 1 peso January 5 $.14 = 1 peso January 15 S.15 = 1 peso Required: 1) Prepare the required journal entries at Nour Corporation to record the previous transactions. 2) Determine the amount of Accounts Payable that will be included on the December 31, 2019 balance sheet of Nour Company. 3) Did the U.S. dollar strengthen or weaken from November to January and what are the implications for Nour business? Prove your answer. C- A review of Sara Company, a U.S. corporation, shows the following balances in accounts receivable detail at December 31, 2019, their fiscal year end. Receivables denominated in U.S. dollar $852,000. Receivable denominated in 80,000 Australian dollar $86,000, and Receivable denominated in 140,000 Canadian dollar $143,500 As Sara prepared to close their books, they noted that the December 31 exchange rates for the Australian dollar, Canadian dollar and Hong Kong dollar were $1.0366, $1.0391 and $0.1284, respectively. Required: 1- Determine the exchange gain or loss to be included in the 2019 financial statements 2- Determine the amount of Accounts Receivable that will be included on the December 31, 2019 balance sheet. (4 Marks) D- The reciprocal ledger account balances of Youssef Company's branch and home office are not in agreement at year-end. What factors might have caused this? Give examples