Question
Task 5: Foreign Currency Sendelbach Corporation is a U.S.based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this
Task 5: Foreign Currency
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$). As of December 31, 2013, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows:
Main Operation--Canada | ||
Debit | Credit | |
Accounts payable | C$ 35,000 | |
Accumulated depreciation | 27,000 | |
Buildings and equipment | C$167,000 | |
Cash | 26,000 | |
Common stock | 50,000 | |
Cost of goods sold | 203,000 | |
Depreciation expense | 8,000 | |
Dividends paid, 4/1/13 | 28,000 | |
Gain on sale of equipment, 6/1/13 | 5,000 | |
Inventory | 98,000 | |
Notes payabledue in 2016 | 76,000 | |
Receivables | 68,000 | |
Retained earnings, 1/1/13 | 135,530 | |
Salary expense | 26,000 | |
Sales | 312,000 | |
Utility Expense | 9,000 | |
Branch Operation | 7,530 | |
Totals | C$640,530 | C$640,530 |
Branch Operation--Mexico | ||
Debit | Credit | |
Accounts payable | PS 49,000 | |
Accumulated depreciation | 19,000 | |
Buildings and equipment | Ps 40,000 | |
Cash | 59,000 | |
Depreciation expense | 2,000 | |
Inventory (beginning income statement) | 23,000 | |
Inventory (ending income statement) | 28,000 | |
Inventory (ending balance sheet) | 28,000 | |
Purchases | 68,000 | |
Receivables | 21,000 | |
Salary Expense | 9,000 | |
Sales | 124,000 | |
Main office | 30,000 | |
Totals | Ps 250,000 | Ps 250,000 |
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 2005 when the currency exchange rate was C$0.25 5 Ps 1.
Purchases should be assumed as having been made evenly throughout the fiscal year.
Beginning inventory was acquired evenly throughout 2012; ending inventory was acquired evenly throughout 2013.
The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$7,530 on December 31, 2013.
Currency exchange rates for 1 Ps applicable to the Mexican operation follow:
Weighted average, 2012 | C$0.30 |
January 1, 2013 | 0.32 |
Weighted average rate for 2013 | 0.34 |
December 31, 2013 | 0.35 |
The December 31, 2012, consolidated balance sheet reported a cumulative translation adjustment with a $36,950 credit (positive) balance.
The subsidiarys common stock was issued in 2004 when the exchange rate was $0.45 5 C$1.
The subsidiarys December 31, 2012, Retained Earnings balance was C$135,530, a figure that has been translated into US$70,421.
The applicable currency exchange rates for 1 C$ for translation purposes are as follows:
January 1, 2013 | US$0.70 |
April 1, 2013 | 0.69 |
June 1, 2013 | 0.68 |
Weighted average rate for 2013 | 0.67 |
December 31, 2013 | 0.65 |
a. Remeasure the Mexican operations figures into Canadian dollars. (Hint: Back into the beginning net monetary asset or liability position.)
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