Question
Sendelbach Corporation is a U.S.-based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates
Sendelbach Corporation is a U.S.-based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primarily in Canada, it engages in some transactions through a branch in Mexico. Therefore, the subsidiary maintains a ledger denominated in Mexican pesos (Ps) and a general ledger in Canadian dollars (C$). As of December 31, 2020, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows:
Main OperationCanada | |||||
Debit | Credit | ||||
Accounts payable | C$ | 25,650 | |||
Accumulated depreciation | 35,000 | ||||
Buildings and equipment | C$ | 175,000 | |||
Cash | 34,000 | ||||
Common stock | 58,000 | ||||
Cost of goods sold | 211,000 | ||||
Depreciation expense | 7,700 | ||||
Dividends, 4/1/20 | 27,000 | ||||
Gain on sale of equipment, 6/1/20 | 5,800 | ||||
Inventory | 87,000 | ||||
Notes payabledue in 2023 | 77,000 | ||||
Receivables | 76,000 | ||||
Retained earnings, 1/1/20 | 143,590 | ||||
Salary expense | 31,000 | ||||
Sales | 320,000 | ||||
Utility expense | 9,800 | ||||
Branch operation | 6,540 | ||||
Totals | C$ | 665,040 | C$ | 665,040 | |
Branch OperationMexico | |||||
Debit | Credit | ||||
Accounts payable | Ps | 55,800 | |||
Accumulated depreciation | 22,800 | ||||
Building and equipment | Ps | 48,000 | |||
Cash | 63,000 | ||||
Depreciation expense | 2,800 | ||||
Inventory (beginningincome statement) | 31,000 | ||||
Inventory (endingincome statement) | 32,000 | ||||
Inventory (endingbalance sheet) | 32,000 | ||||
Purchases | 65,000 | ||||
Receivables | 29,000 | ||||
Salary expense | 9,800 | ||||
Sales | 132,000 | ||||
Main office | 38,000 | ||||
Totals | Ps | 280,600 | Ps | 280,600 | |
Additional Information
-
The Canadian subsidiarys functional currency is the Canadian dollar, and Sendelbachs reporting currency is the U.S. dollar. The Canadian and Mexican operations are not viewed as separate accounting entities.
-
The building and equipment used in the Mexican operation were acquired in 2010 when the currency exchange rate was C$0.17 = Ps 1.
-
Purchases of inventory were made evenly throughout the fiscal year.
-
Beginning inventory was acquired evenly throughout 2019; ending inventory was acquired evenly throughout 2020.
-
The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$6,540 on December 31, 2020.
-
Currency exchange rates for 1 Ps applicable to the Mexican operation follow:
Weighted average, 2019 | C$ | 0.22 |
January 1, 2020 | 0.24 | |
Weighted average rate for 2020 | 0.26 | |
December 31, 2020 | 0.27 | |
-
The December 31, 2019, consolidated balance sheet reported a cumulative translation adjustment with a $44,950 credit (positive) balance.
-
The subsidiarys common stock was issued in 2007 when the exchange rate was $0.53 = C$1.
-
The subsidiarys December 31, 2019, retained earnings balance was C$143,590, an amount that has been translated into U.S.$65,423.
-
The applicable currency exchange rates for 1 C$ for translation purposes are as follows:
January 1, 2020 | US$ | 0.70 |
April 1, 2020 | 0.69 | |
June 1, 2020 | 0.68 | |
Weighted average rate for 2020 | 0.67 | |
December 31, 2020 | 0.65 | |
-
Remeasure the Mexican operations account balances into Canadian dollars. (Note: Back into the beginning net monetary asset or liability position.)
-
Prepare financial statements (income statement, statement of retained earnings, and balance sheet) for the Canadian subsidiary in its functional currency, Canadian dollars.
-
Translate the Canadian dollar functional currency financial statements into U.S. dollars so that Sendelbach can prepare consolidated financial statements.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started