QUESTION #3

X Company acquired 70% of the Y Company on December 31%2022 at a cost of C$1,400,000. Y is based in Italy.

The book values of Y's assets and liabilities were equal to fair values o the date of acquisition, except for equipment(net), which had a fair value of 300,000 Euros(EUR). The equipment had a remaining useful life of 8 years on the date of acquisition and it is being amortized on a straight-line basis. Following are the financial statements of Y.

HINT: (This question requires multiplication)

Y COMPANY

Balance Sheets (in Euros)

December 31".2023..

..December 31".2022

Assets:

Cash

Accounts receivable.

Inventory...

Equipment,net.

300,000..

470,000..

600,000

210,000..

EUR 1,580,000..

EUR 310,000

450,000

400,000

240,000

EUR 1,400,000

Liabilities and shareholders' equity:		EUR 270,000
Accounts payable.. EUR	360,000	500,000
Bonds payable...	500,000 250,000	250,000
Common shares.		380,000
Retained Earnings..	470,000.. EUR 1,580,000	EUR 1,400,000

Y COMPANY

Statement of Income and Retained Earnings

Year ended December 315.2023

Sales.	EUR 1,500,000
Cost of Goods sold	1,100,000
Gross Profit.	400,000
EXPENSES:
Selling and administrative expenses.	160,000
Bond interest expense.	40,000 30,000
Amortization.....
Income before income taxes	170,000
Income Taxes..	60,000
Net Income.	110,000
Retained Earnings, January 1%.2023	380,000
Dividends..	(20,000)
Retained Earnings, December 31.2023.	470,000

Additional Information:

January 1, 2018..	EUR 1 = C$1.50
October 31, 2022	EUR 1 = C$1.62
December 31, 2022/January 1,2023.	EUR 1 = C$1.65
October 31, 2023..	EUR 1 = C$1.68
Average for 2023.	EUR 1 = C$1.67

December 31, 2023

EUR 1 = C$1.70

1. Inventories on hand at December 31.2023 and December 31.2022 were purchased on October 31.2023 and October 31, 2022 respectively.
2. The bonds were originally issued by Y on January 1", 2018 and mature on December 31". 2027. The proceeds from the bonds were used to acquire all of Y's capital assets(no capital assets were acquired after January 1, 2018).
3. Dividends of $20,000 were declared and paid on October 31. 2023.
4. All sales, purchases, and other expenses were incurred evenly throughout the year.

Required:-

a.

Assume Y uses the functional currency translation method(FCT), prepare a detailed schedule that shows the calculation of the foreign exchange gain or loss to be included on the December 31. 2023, translated statement of

income.

b.

Assume that Y uses the presentation currency translation method(PCT),translate the shareholders' equity section of the December 31. 2023 balance sheet into Canadian dollars. Include a detailed schedule that shows the calculation of the exchange gain and loss.