Question 2 - Translation and Consolidation of Foreign Operations (34 Marks) On January 1, 2013, Crow Corporation, a Canadian company, acquired 80% of the outstanding shares of Penguin Products of Paracas, Peru, for a cash consideration of 514,000 Peruvian Nuevo Sol (PEN). On that date, all assets and liabilities on the balance sheet of Penguin Products were fairly valued except for some capital assets (with a remaining useful life of six years) which were undervalued by PEN 120.000 Any unallocated acquisition differential was considered to be goodwill, assessed annually for impairment No goodwill impairment was identified for the year ended December 31, 2013. The balance sheet of Penguin Products on January 1, 2013 was as follows: Balance Sheet as at January 1, 2013 Cash Accounts receivable Inventory Capital assets, net Investment in Penguin Products Total assets Penguin PEN 150,000 190,000 80,000 420,000 840,000 Current liabilities long-term debt Common shares Retained earnings 300.000 190,000 50,000 300.000 840,000 The financial statements for the two companies for 2013 were as follows: Income Statements Crow Penguin Cans PEN Sales 640,000 650,000 Dividend income 80,000 Total revenues 720,000 650,000 Cost of goods sold 270,000 195,000 Amortization expense 100,000 Other expenses 60,000 36,000 Interest expense 50,000 24,000 Income taxes 60,000 Total expenses 540,000 450,000 Net income 180,000 200,000 Retained earnings, January 1 450,000 300,000 Dividends (120,000) (100,000) Retained earnings, December 31 510,000 400,000 120,000 75,000 Balance Sheets Crow Cans Cash 75,000 Accounts receivable 400,000 Inventory 450,000 Capital assets, net 650,000 Investment in Penguin Products 200.000 Total assets 1.775.000 Penguin PEN 170,000 170,000 110.000 450,000 900,000 C entiliahilities 1 Following are exchange rates for the Peruvian Nuevo Sol against the Canadian dollar January 1, 2010 Can$1.00 = PEN 3.00 November 15, 2012 Can$1.00 = PEN 2.59 Dec 31, 2012/Jan 1, 2013 Can$1.00 = PEN 2.57 April 1, 2013 Can$1.00 = PEN 2.59 July 1, 2013 Can$1.00 = PEN 2.78 November 15, 2013 Can$1.00 = PEN 2.79 December 31, 2013 Can$1.00 = PEN 2.80 Average Jan to June 2013 Can$1.00 = PEN 2.67 Average July to Dec 2013 Can$1.00 = PEN 2.79 Average Jan to Dec 2013 Can$1.00 = PEN 2.73 Required: (a) Calculate the exchange gain that would be included in the translated financial statements for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation (b) Prepare the (Canadian dollar) translated income statement for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. (c) Calculate the consolidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. (d) Calculate the consolidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be a self-sustaining foreign operation Question 2 - Translation and Consolidation of Foreign Operations (34 Marks) On January 1, 2013, Crow Corporation, a Canadian company, acquired 80% of the outstanding shares of Penguin Products of Paracas, Peru, for a cash consideration of 514,000 Peruvian Nuevo Sol (PEN). On that date, all assets and liabilities on the balance sheet of Penguin Products were fairly valued except for Some capital assets (with a remaining useful life of six years) which were undervalued by PEN 120,000 Any unallocated acquisition differential was considered to be goodwill, assessed annually for impairment No goodwill impairment was identified for the year ended December 31, 2013. The balance sheet of Penguin Products on January 1, 2013 was as follows: Balance Sheet as at January 1, 2013 Penguin PEN Cash 150,000 Accounts receivable 190,000 Inventory 80,000 Capital assets, net 420,000 Investment in Penguin Products Total assets 840,000 300,000 Current liabilities Long-term debt Common shares Retained earnings 190,000 300 840,000 Balance Sheets Crow Can$ Cash 75,000 Accounts receivable 400,005 Inventory 450,000 Capital assets, net 650,000 Investment in Penguin Products 200,000 Total assets 1,775,000 Current liabilities 400,000 Long-term debt 500,000 Common shares 365,000 Retained earnings $10,000 1,775,000 Penguin PEN 170,000 170,000 110,000 450,000 900,000 160,000 290,000 50,000 400,000 900,000 The capital assets on the books of Penguin Products on the acquisition date had been acquired on January 1, 2010. Additional capital assets were acquired on July 1, 2013, at a cost of PEN 150,000 These new assets had an estimated economic life of five years from that date with no expected residual value. The initial long-term debt was incurred on January 1, 2010. Penguin Products increased its long- term debt on July 1, 2013, to finance the capital asset purchase on that date. The interest rate on all the company's long-term debt was 10% per year, with interest payable twice yearly on June 30 and December 31. The opening inventory at January 1, 2013, had been acquired on November 15, 2012, and the inventory on hand at the end of 2013 had been acquired on November 15, 2013. Both companies declared and paid dividends on April 1, 2013. (The income of Crow Corporation included dividends from other investments.) Sales, purchases and other expenses were incurred evenly over the year. Crow Corporation accounts for its investment in Penguin Products using the cost method and values the noncontrolling interest in Penguin Products at its fair value, proportionate to the price paid for its controlling interest. Following are exchange rates for the Peruvian Nuevo Sol against the Canadian dollar January 1, 2010 Can$1.00 = PEN 3.00 November 15, 2012 Can$1.00 = PEN 2.59 Dec 31, 2012/Jan 1, 2013 Can$1.00 = PEN 2.57 April 1, 2013 Can$1.00 = PEN 2.59 July 1, 2013 Can$1.00 = PEN 2.78 November 15, 2013 Can$1.00 = PEN 2.79 December 31, 2013 Can$1.00 = PEN 2.80 Average Jan to June 2013 Can$1.00 = PEN 2.67 Average July to Dec 2013 Can$1.00 = PEN 2.79 Average Jan to Dec 2013 Can$1.00 = PEN 2.73 Required: (a) Calculate the exchange gain that would be included in the translated financial statements for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. (b) Prepare the (Canadian dollar) translated income statement for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation (c) Calculate the consolidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. (d) Calculate the consolidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be a self-sustaining foreign operation Question 2 - Translation and Consolidation of Foreign Uperations (54 Mains) On January 1, 2013, Crow Corporation, a Canadian company, acquired 80% of the outstanding shares of Penguin Products of Paracas, Peru, for a cash consideration of 514,000 Peruvian Nuevo Sol (PEN). On that date, all assets and liabilities on the balance sheet of Penguin Products were fairly valued except for some capital assets (with a remaining useful life of six years) which were undervalued by PEN 120,000. Any unallocated acquisition differential was considered to be goodwill, assessed annually for impairment. No goodwill impairment was identified for the year ended December 31, 2013. The balance sheet of Penguin Products on January 1, 2013 was as follows: Balance Sheet as at January 1, 2013 Cash Accounts receivable Inventory Capital assets, net Investment in Penguin Products Total assets Penguin PEN 150,000 190,000 80,000 420,000 840,000 Current liabilities Long-term debt Common shares Retained earnings 300,000 190,000 50,000 300,000 840,000 The financial statements for the two companies for 2013 were as follows: 21 Penguin PEN 650,000 Income Statements Crow Can$ Sales 640,000 Dividend income 80,000 Total revenues 720,000 Cost of goods sold 270,000 Amortization expense 100,000 Other expenses 60,000 Interest expense 50,000 Income taxes 60,000 Total expenses 540,000 Net income 180,000 Retained earnings, January 1 450,000 Dividends (120,000) Retained earnings, December 31 510,000 650,000 195,000 120,000 36,000 24,000 75,000 450,000 200,000 300,000 (100,000) 400,000 Dividends Retained earnings, December 31 120,000/ 5 10,000 100, 400,000 Penguin PEN 170,000 170,000 110,000 450,000 Balance Sheets Crow Can$ Cash 75,000 Accounts receivable 400,000 Inventory 450,000 Capital assets, net 650,000 Investment in Penguin Products 200,000 Total assets 1,775,000 Current liabilities 400,000 Long-term debt 500,000 Common shares 365,000 Retained earnings 510,000 1,775,000 900,000 160,000 290,000 50,000 400,000 900,000 The capital assets on the books of Penguin Products on the acquisition date had been January 1, 2010. Additional capital assets were acquired on July 1, 2013, at a cost of F These new assets had an estimated economic life of five years from that date with no expe value. The initial long-term debt was incurred on January 1, 2010. Penguin Products increa term debt on July 1, 2013, to finance the capital asset purchase on that date. The interest company's long-term debt was 10% per year, with interest payable twice yearly on December 31. The nanininonton t Innunn 1 12 had haan ma n Following are exchange rates for the Peruvian Nuevo Sol against the Canadian dollar January 1, 2010 Can$1.00 = PEN 3.00 November 15, 2012 Can$1.00 = PEN 2.59 Dec 31, 2012/Jan 1, 2013 Can$1.00 = PEN 2.57 April 1, 2013 Can$1.00 = PEN 2.59 July 1, 2013 Can$1.00 = PEN 2.78 November 15, 2013 Can$1.00 = PEN 2.79 December 31, 2013 Can$1.00 = PEN 2.80 Average Jan to June 2013 Can$1.00 = PEN 2.67 Average July to Dec 2013 Can$1.00 = PEN 2.79 Average Jan to Dec 2013 Can$1.00 = PEN 2.73 Required: (a) Calculate the exchange gain that would be included in the translated financial statements for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. (b) Prepare the (Canadian dollar) translated income statement for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. c) Calculate the consolidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation (d) Calculate the con glidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be a self-sustaining foreign operation. Question 2 - Translation and Consolidation of Foreign Operations (34 Marks) On January 1, 2013, Crow Corporation, a Canadian company, acquired 80% of the outstanding shares of Penguin Products of Paracas, Peru, for a cash consideration of 514,000 Peruvian Nuevo Sol (PEN). On that date, all assets and liabilities on the balance sheet of Penguin Products were fairly valued except for some capital assets (with a remaining useful life of six years) which were undervalued by PEN 120.000 Any unallocated acquisition differential was considered to be goodwill, assessed annually for impairment No goodwill impairment was identified for the year ended December 31, 2013. The balance sheet of Penguin Products on January 1, 2013 was as follows: Balance Sheet as at January 1, 2013 Cash Accounts receivable Inventory Capital assets, net Investment in Penguin Products Total assets Penguin PEN 150,000 190,000 80,000 420,000 840,000 Current liabilities long-term debt Common shares Retained earnings 300.000 190,000 50,000 300.000 840,000 The financial statements for the two companies for 2013 were as follows: Income Statements Crow Penguin Cans PEN Sales 640,000 650,000 Dividend income 80,000 Total revenues 720,000 650,000 Cost of goods sold 270,000 195,000 Amortization expense 100,000 Other expenses 60,000 36,000 Interest expense 50,000 24,000 Income taxes 60,000 Total expenses 540,000 450,000 Net income 180,000 200,000 Retained earnings, January 1 450,000 300,000 Dividends (120,000) (100,000) Retained earnings, December 31 510,000 400,000 120,000 75,000 Balance Sheets Crow Cans Cash 75,000 Accounts receivable 400,000 Inventory 450,000 Capital assets, net 650,000 Investment in Penguin Products 200.000 Total assets 1.775.000 Penguin PEN 170,000 170,000 110.000 450,000 900,000 C entiliahilities 1 Following are exchange rates for the Peruvian Nuevo Sol against the Canadian dollar January 1, 2010 Can$1.00 = PEN 3.00 November 15, 2012 Can$1.00 = PEN 2.59 Dec 31, 2012/Jan 1, 2013 Can$1.00 = PEN 2.57 April 1, 2013 Can$1.00 = PEN 2.59 July 1, 2013 Can$1.00 = PEN 2.78 November 15, 2013 Can$1.00 = PEN 2.79 December 31, 2013 Can$1.00 = PEN 2.80 Average Jan to June 2013 Can$1.00 = PEN 2.67 Average July to Dec 2013 Can$1.00 = PEN 2.79 Average Jan to Dec 2013 Can$1.00 = PEN 2.73 Required: (a) Calculate the exchange gain that would be included in the translated financial statements for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation (b) Prepare the (Canadian dollar) translated income statement for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. (c) Calculate the consolidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. (d) Calculate the consolidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be a self-sustaining foreign operation Question 2 - Translation and Consolidation of Foreign Operations (34 Marks) On January 1, 2013, Crow Corporation, a Canadian company, acquired 80% of the outstanding shares of Penguin Products of Paracas, Peru, for a cash consideration of 514,000 Peruvian Nuevo Sol (PEN). On that date, all assets and liabilities on the balance sheet of Penguin Products were fairly valued except for Some capital assets (with a remaining useful life of six years) which were undervalued by PEN 120,000 Any unallocated acquisition differential was considered to be goodwill, assessed annually for impairment No goodwill impairment was identified for the year ended December 31, 2013. The balance sheet of Penguin Products on January 1, 2013 was as follows: Balance Sheet as at January 1, 2013 Penguin PEN Cash 150,000 Accounts receivable 190,000 Inventory 80,000 Capital assets, net 420,000 Investment in Penguin Products Total assets 840,000 300,000 Current liabilities Long-term debt Common shares Retained earnings 190,000 300 840,000 Balance Sheets Crow Can$ Cash 75,000 Accounts receivable 400,005 Inventory 450,000 Capital assets, net 650,000 Investment in Penguin Products 200,000 Total assets 1,775,000 Current liabilities 400,000 Long-term debt 500,000 Common shares 365,000 Retained earnings $10,000 1,775,000 Penguin PEN 170,000 170,000 110,000 450,000 900,000 160,000 290,000 50,000 400,000 900,000 The capital assets on the books of Penguin Products on the acquisition date had been acquired on January 1, 2010. Additional capital assets were acquired on July 1, 2013, at a cost of PEN 150,000 These new assets had an estimated economic life of five years from that date with no expected residual value. The initial long-term debt was incurred on January 1, 2010. Penguin Products increased its long- term debt on July 1, 2013, to finance the capital asset purchase on that date. The interest rate on all the company's long-term debt was 10% per year, with interest payable twice yearly on June 30 and December 31. The opening inventory at January 1, 2013, had been acquired on November 15, 2012, and the inventory on hand at the end of 2013 had been acquired on November 15, 2013. Both companies declared and paid dividends on April 1, 2013. (The income of Crow Corporation included dividends from other investments.) Sales, purchases and other expenses were incurred evenly over the year. Crow Corporation accounts for its investment in Penguin Products using the cost method and values the noncontrolling interest in Penguin Products at its fair value, proportionate to the price paid for its controlling interest. Following are exchange rates for the Peruvian Nuevo Sol against the Canadian dollar January 1, 2010 Can$1.00 = PEN 3.00 November 15, 2012 Can$1.00 = PEN 2.59 Dec 31, 2012/Jan 1, 2013 Can$1.00 = PEN 2.57 April 1, 2013 Can$1.00 = PEN 2.59 July 1, 2013 Can$1.00 = PEN 2.78 November 15, 2013 Can$1.00 = PEN 2.79 December 31, 2013 Can$1.00 = PEN 2.80 Average Jan to June 2013 Can$1.00 = PEN 2.67 Average July to Dec 2013 Can$1.00 = PEN 2.79 Average Jan to Dec 2013 Can$1.00 = PEN 2.73 Required: (a) Calculate the exchange gain that would be included in the translated financial statements for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. (b) Prepare the (Canadian dollar) translated income statement for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation (c) Calculate the consolidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. (d) Calculate the consolidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be a self-sustaining foreign operation Question 2 - Translation and Consolidation of Foreign Uperations (54 Mains) On January 1, 2013, Crow Corporation, a Canadian company, acquired 80% of the outstanding shares of Penguin Products of Paracas, Peru, for a cash consideration of 514,000 Peruvian Nuevo Sol (PEN). On that date, all assets and liabilities on the balance sheet of Penguin Products were fairly valued except for some capital assets (with a remaining useful life of six years) which were undervalued by PEN 120,000. Any unallocated acquisition differential was considered to be goodwill, assessed annually for impairment. No goodwill impairment was identified for the year ended December 31, 2013. The balance sheet of Penguin Products on January 1, 2013 was as follows: Balance Sheet as at January 1, 2013 Cash Accounts receivable Inventory Capital assets, net Investment in Penguin Products Total assets Penguin PEN 150,000 190,000 80,000 420,000 840,000 Current liabilities Long-term debt Common shares Retained earnings 300,000 190,000 50,000 300,000 840,000 The financial statements for the two companies for 2013 were as follows: 21 Penguin PEN 650,000 Income Statements Crow Can$ Sales 640,000 Dividend income 80,000 Total revenues 720,000 Cost of goods sold 270,000 Amortization expense 100,000 Other expenses 60,000 Interest expense 50,000 Income taxes 60,000 Total expenses 540,000 Net income 180,000 Retained earnings, January 1 450,000 Dividends (120,000) Retained earnings, December 31 510,000 650,000 195,000 120,000 36,000 24,000 75,000 450,000 200,000 300,000 (100,000) 400,000 Dividends Retained earnings, December 31 120,000/ 5 10,000 100, 400,000 Penguin PEN 170,000 170,000 110,000 450,000 Balance Sheets Crow Can$ Cash 75,000 Accounts receivable 400,000 Inventory 450,000 Capital assets, net 650,000 Investment in Penguin Products 200,000 Total assets 1,775,000 Current liabilities 400,000 Long-term debt 500,000 Common shares 365,000 Retained earnings 510,000 1,775,000 900,000 160,000 290,000 50,000 400,000 900,000 The capital assets on the books of Penguin Products on the acquisition date had been January 1, 2010. Additional capital assets were acquired on July 1, 2013, at a cost of F These new assets had an estimated economic life of five years from that date with no expe value. The initial long-term debt was incurred on January 1, 2010. Penguin Products increa term debt on July 1, 2013, to finance the capital asset purchase on that date. The interest company's long-term debt was 10% per year, with interest payable twice yearly on December 31. The nanininonton t Innunn 1 12 had haan ma n Following are exchange rates for the Peruvian Nuevo Sol against the Canadian dollar January 1, 2010 Can$1.00 = PEN 3.00 November 15, 2012 Can$1.00 = PEN 2.59 Dec 31, 2012/Jan 1, 2013 Can$1.00 = PEN 2.57 April 1, 2013 Can$1.00 = PEN 2.59 July 1, 2013 Can$1.00 = PEN 2.78 November 15, 2013 Can$1.00 = PEN 2.79 December 31, 2013 Can$1.00 = PEN 2.80 Average Jan to June 2013 Can$1.00 = PEN 2.67 Average July to Dec 2013 Can$1.00 = PEN 2.79 Average Jan to Dec 2013 Can$1.00 = PEN 2.73 Required: (a) Calculate the exchange gain that would be included in the translated financial statements for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. (b) Prepare the (Canadian dollar) translated income statement for Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation. c) Calculate the consolidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be an integrated foreign operation (d) Calculate the con glidated net income of Crow Company and its subsidiary Penguin Products for 2013 if the subsidiary is considered to be a self-sustaining foreign operation