Stilton Company a USbased company has a subsidiary in Canada that began operations at the start of with assets of Canadian dollars CAD and liabilities of CAD During this initial year of operation, the subsidiary reported a profit of CAD It distributed two dividends, each for CAD with one dividend declared on March and the other on October Applicable US dollar $ exchange rates for Canadian dollar follow:

January start of business $

March

Weighted average rate for

October

December

Required:

a Assume that the Canadian dollar is this subsidiarys functional currency. What translation adjustment would the company report for the year

b Assume that on October Stilton entered into a forward exchange contract to hedge the net investment in this subsidiary. On that date, the company agreed to sell CAD in three months at a forward exchange rate of $CAD Prepare the journal entries required by this forward contract.

c Compute the net translation adjustment the company will report in accumulated other comprehensive income for the year under this second set of circumstances.