You have just come back from your meeting with Hector and Sophia Perez, owners of

Scenic View Winery, and are organizing your notes. As the new accountant for the winery,

the meeting was to bring you up to speed with the company's history, organization structure

and upcoming events/challenges.

Scenic View Winery is a family owned and run winery that has been in operation since the

1950's when Hector's parents moved into the Okanogan Valley and purchased their first

grape orchard. Over the years, the winery has been successful in developing its special

brands of chardonnay and ice wines which are marketed in Canada and around the world.

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Scenic View Winery Case You have just come back from your meeting with Hector and Sophia Perez, owners of Scenic View Winery, and are organizing your notes. As the new accountant for the winery, the meeting was to bring you up to speed with the company's history, organization structure and upcoming eventsfchallenges. Scenic View Winery is a family owned and run winery that has been in operation since the 1950's when Hector's parents moved into the Okanogan Valley and purchased their rst grape orchard. Over the years, the winery has been successful in developing its special brands of chardonnay and ice wines which are marketed in Canada and around the world. In the past number of years, the demand for wine has grown as young adult consumers have begun to discover the heaith benefits of moderate wine consumption. As a result of this, Scenic View Winery made the choice in January 2014 to expand its operations by purchasing a T595 controlling interest in another family run winery called Setting Sun Vineyards. Setting Sun Vineyards is located in the Niagara region and is known for its premium merlot. Scenic View makes annual purchases of this wine to sell it in its own winery that each year sees thousands of visitors from around the worid as they vacation in the picturesque Ulcanogan Valley. With the political situation changing in the United States and the speculation of increased cross border tariffs, Scenic View wanted to nd an American winery that could be used as a distribution center for its wines to the American consumer. It was important to Hector and Sophia to nd a winery that shared the same family values and commitment to high quality wine as they possessed. Aiter some searching, Hector found another family run winery located in the Willamette Valley of Oregon state called Redford Family Vineyards. Although a smail operation, the Redford Family Vineyard had a reputation of excellence and had an elite pinot noir wine that had won a national award. Bmce and Aiice Redford were the sole owners of Redford Family Vineyard and were at the stage of life where they wanted to retire, but none of their children were interested in carrying on the winery. They were open to selling, but stiil wanted to keep an interest in the winery as a means to supplement their retirement savings. After several meetings to discuss specics, an arrangement was agreed to that would be benecial to both parties and subsequently, Scenic View acquired a 90% interest in Redford Familry Vineyards as of January 1, 201?. 10. Due to the strength of the US currency. it was cheaper to buy winery supplies from Canada. Thus, early in 201?, Hector switched RFV's supplier of wine bottles for its local wine production trom an American supplier to the same Canadian supplier used by Scenic View. 11. RFV's sales market primarily includes the United Statesr with some sales to Europe and Australia. The selling prices for Scenic View's brand of wines is set by Scenic View. Selling prices for the RFV brands are nowr jointly determined by Hector and RFV's operations manager. 12. By November 201?, Hector was satised with how the transition had gone. The RFV winery was running smoothly and sales had increased signicantly from the prior year. Consequently, RF'l.r declared a modest dividend of US$T5,EIOU on December 1, 201?. 13. Relevant exchange rates are as follows: Date Exchange Rate January 1, 201? US$1 : $1.34 April 30, 2017 US$1 = $1.37 June 1, 2017 U5$1 = $1.35 Dec1,2017 U5$1 = $1.27 Dec. 31, 201T!r U551 = $1.26 Average Rate US$1 : $1.30 Ending Inventory US$1 : $1.28 Redford Family Vineyards Statement of Income and Retained Earnings 12f3201'.' US Dollars 2012 2016 Sales Reserve 6,811,460 4,147,231] Cast of Sales 3, 552,006 2,168,540 Gross prot 3,254,454 1,928,240 Expense Adiertising 414,312 207,226 Amortization 151,294 95,473 Bad debts 44,624 54,256 Commissions 305, 293 207,864 hsuance 35, 58'." 34,943 hterest and bank charges 19,027 28,170 Ofce expenses 135,957 133,228 Pmiasional fee; 18,314 15,436 Management be 195,000 - Pmpelty taxes 8,245 8,357 Repairs and maintenance 41,922 38,152 Salaries and wages 953,225 545,392 Travel and enteltainment 52,440 41,070 Utilities 81,543 25,571 Totd Expenses 2,450,543 1,485,258 Net Income bebre taxes and other income 293,911 492,982 Foreign Exchange Loss 0 Loss on Sale oi Emiprnent [22,200] Income taxes 230,013 147,895 Net Income 535,598 345,087 Reta'ned Earrings Beginning nfyear 1,355,481 1,021,394 dividends 25,000 - Reta'ned Earrings End nfyear 1,828,129 1,366,481 Redford Farnily Vineyards Statement of Financial Position 12i31i201? US Dollars 2017 2016 Assets Cuneni Assets Cash 208,525 266,068 Amounts Remit-able 28,664 76,443 Inventory 495,93? 442,932 Other Assets 10,460 10,460 793,586 295,913 Non-current Assets Equipment Cost 2,021,520 1,522,520 Accumulated Amortization [239, 2521 {932,268} 1,281,858 590,352 Land 845,000 845,!IIU 2,125,858 1,435,352 Total Assets 2,920,444 2,231,255 Liabilities Current Liabilities: Accounts Payable 139,520 351,954 Dividend Payable 25,000 Current Portion LTD 25,948 214,520 372,902 Due toScenicUiew winery 500.000 Long Term Debt 209,227 Total Uabilities 814,520 582,13 Share Capital 222,545 222,545 Retained Earnings 1,828,129 1,355,481 2,920,444 2,231,155 Hector is so happy to have you on board, as this is the rst year that they will need to consolidate a foreign owned business and they were impressed with your expertise in handling foreign currency translation. Furthermore, there is potential for another foreign acquisition. During February 2017, Hector and Sophia visited relatives in Argentina. While there, they toured other wineries in the Uco Valley which is known for its premium white wines. The Perez's were especially impressed with Casa de Lopez Estates and are considering acquinng an interest in that family owned winery sometime in 2018. With all of this history in mind, you have organized your notes and information in the following exhibits: Exhibit 1 contains the nancial statements for Scenic View Winery for the year ended December 31, 201?. Exhibit 2 contains information and the nancial statements for Setljng Sun Vineyards for the year ending December 31 , 201 '1'. Exhibit 3 contains information and the nancial statements for Redford Family Vineyards for the year ending December 31 , 201 '1'. General Notes: All companies have a 30% tax rate. Reguired: Your Submission: Part One: Translation of Redford Family Vineyards (RFV) nancial statements for the year ended, December 31, 201? provided in Exhibit 3. 111is portion of the case is due on My. Febmary 1. 2018 at Barn. 1. Calculate the foreign exchange gain and loss assuming: a. The company is integrated and the functional currency is the Canadian dollar. b. The company is selfsustaining and the functional currency is the US dollar. 2. Prepare an analysis of Redford Family Vineyards functional currency. Your analysis should include a discussion of all the factors you considered to enable you to conclude on the functional currency of RFV and which translation method to use. 3. Based on your conclusion above, translate RFV's nancial statements, including the Statement of Financial Position and Statement of Comprehensive Income. Please show all your calculation in Excel. a. Where applicable, your worksheet should show three columns: (1) the account value in foreign cunency, (2) the exchange rate used, and [3) the translated balance. b. For accounts that require a more involved calculation to translate, the supporting calculation for the translated value should be shown in a supporting footnote. Part Two: Based on the Translated nancial statements provided, prepare the consolidated nancial statements. Consolidated statements will include the Consolidated Statements of Comprehensive income, Financial Position and Retained Earnings. This portion of the case is due on m March 29. 2013 at 3am. In Excel: 1. Prepare the consolidating joumai entries for December 31, 201?. The entries should include an explanation as to their purpose and all needed calculations should be provided. 2. Prepare a consolidation worksheet using a multiple column format. The worksheet should include one column for each company reflecting the original statements (in Cdn $}, at least two columns {DRICR} for the consolidation entries and a nal column for the consolidated totals. 3. Prepare supporting calculations for: a. consolidated net income attributable to the parent and non-controlling interest, b. consolidated retained earnings and c. noncontroliing interest on the statement of nancial position. Exhibit One Scenic View Wing Scenic View Winery Statement of Income and Retained Earnings IZISIJ'S'JJ]? Sales Revenue 33,426,300 Cost of Sales 21,727,095 Gross poit 11,699,205 Expense Advertising 680. 100 Amortization 606.9(3) Bad debts 240.261) Commissions 1,621,315 hsu'ance 190.7(1) hterest and bank charges 215.040 Olice expenses 943.120 Professional fees 110.000 Management lee - Property taxes 235.200 Repairs and maintenance $73,365 Salaries and wages 2,505,930 Travel and ertertainmenl 312,400 Utilities 53L6m Total Expenses 9,122,930 Net Income before taxes and other income 2,521,225 Foreign Exchange Loss {40.000} Dividend hcorne 343,225 Mgmt Fee rever'lue 348,500 Interest Revenue 13.500 Income taxes 971,235 Net Income 2,226,215 Retained Eam'ngs - Beginning of your 14,384.70) dividends 8130.000 Retained Eam' - End of :ear 15,310,915 Seenic'v'iew Winery Statement of Financial Position 12f31f2017 Assets Cunent Assets Cash - Amounts Remivable 2,521,300 Inventcry 6,336,200 Other Assets 118,2?5 9,085,775 Non-current Assets Equipment Cost 20,230,203 Accumulated Amortlzatlon {9,818,900} 10,411,3ED Land 881,503 Investment in Setting Sun Vineyard 825,000 Investment in Redford Family Vi nevard 3,350,010 Note Receivable Redford Family Vinevard 756,000 16,223,300 Total Assets 15,309,535 Uabilities Current Liabiiities: Bank Indebtedness 1, 170,100 Accounts Payable 2.351360 Dividend Payable ammo Current Portion LTD 410,61]?! 4,?52,I260 Long Term Debt 4,684,203 Total liabilities 9,436,260 Share Capital 62,41]?! Retained Earnings 15,810,915 25, 309, 515 Exhibit Two Setting Sun Vinggrds 1. Scenic 'v'lew purchased T501: of Setting Sun Vineyard's common shares on January 1, 2014 for $825,000 cash. Common Stock at acquisition was $15?,500 and retained earnings was $740,600. On that date, the FV of the assets equal to NEW with the exception of the following: - Equipment had a FV of $2,270,000 and a corresponding NBV of $2,235,000. The estimated life was 6 years on the date of acquisition. - A Patent had a FV of $3?0,000 and a corresponding NBV of $250,000. The estimated life of the patent was 5 years on the date of acquisition. - Land has a FV of $1 250,000 and a conesponding NBV of $1 202,500. This land is still owned by Setting Sun. The decrease in fair value was not considered to be an indication of a pennanent decline in the value of the land. 2. The 201? ending inventory of Scenic View contains a profit of $180,000 on merchandise purchased from SSV. Scenic 'v'iew purchased a total of $925,000 from SSV in 201?. The 201? beginning inventory of Scenic View contained a prot of $130,000 on merchandise purchased from SSV. 3. On July 1, 2015, Scenic View sold a piece of equipment to SSV for $60,000. The net book value at the time of the sale was $300,000 (Original cost of $1 ,050,000 less Accumulated Depreciation of $350,000). The equipment had a remaining useful life of six years at the time of the sale. 4. Goodwill is tested for impairment each year. In the years prior to 2017, there was no impairment ot goodwill. In 201?, Setting Sun's goodwill was determined to have a fair market value of $54,400. 5. Hector visits Setting Sun Vineyards twice a year to assess business operations, nancial position, future strategy which includes setting of sales prices for the upcoming year, etc. Consequently, Scenic View charges Setting Sun Vineyards a management tee. The management fee for 201? was $95,000. Setting Sun Vineyards Statement of Income and Retained Earnings 12131f2017 2016 Sales Reuerue 3.925% Cost of Sales 5,324,511 Gross prot 3,6EIJ,5-CD Expense Advertising 41?,375 Amortization 147,020 Bad debts 44,625 Commissions 146,370 hsuance 98,730 hteriest and bank charges 235,200 Ofce 316,730 Professional tees BLED Management iee 95,013 Property taxes 151150 Repairs and maintenance 32,030 Salaries and wages 661,030 Travel and entertainment 15,640 Utilities 39,250 Tote! Expenses 2,143,611] Net Income beiote taxes and other income 856,31) Income taxes 25?,0'1'0 Net Income 599,830 Retained Earrings Beginning of year 964,540 dividends 350,01! Retained Earrings - End of year 1,214,333 Setting Sun Vineyards Statement of Financial Position 1251,3201? Curent Assets Cash 11,4120 Aooounts Receivable 918,511!) Inventory 1,958,190 Other Assets 40,640 19%,?30 Non-current Assets PPE oost 3,615,\" Accumulated Amortization {L967,[II)] L703,\" Land 1,262,513 Patent 250,\" 3,220,500 Total Assets 6,209,230 Liabilities Current Liabilities: Aooounts Payable 719,350 Current Portion LTD 380,010 L099,360 Long Term Debt ' memo Total Liabilities 4,837,360 Share Capital 157,500 Retained Earnings 1,214,370 6,329,230 Exhibit Three Redford Fa ' Wines 1. Redford Family Vineyards {RFV} became a 90% owned subsidiary of Scenic 'view Winery (Scenic View) as of January 1, 2017. The other 10% is held by the Bruce and Alice Redford to assist in their retirement. Purchase price was US$2,500,000. At the time of purchase, all of the assets had a fair value equal to their book values with the exception of the following: Asset Fair Value PPE US$ 350,000 Land US$ 1,250,000 Patent US$ 500,000 Property, Plant and Equipment for RFV had a remaining useful life of 8 years as of January 1, 201?. The Patent's useful life is expected to be 10 years. RFV uses straight line depreciation for its PPE, and takes a full year's depreciation in the year of acquisition. During 2017, Hector made frequent trips to Oregon to transition the winery operation from Bruce Redford to Scenic View. Hector rst started by hiring an operations manager. Time was then spent training the manager, and existing RFV staff, in Scenic View's product line and processes. As a result, Scenic View charged RFV US$195,000 in the way of a management fee to compensate for his time. RFV still owes US$25,000 to Scenic View at year end. When Hector was considering purchasing RFV, he was aware that much of the equipment would need to be upgraded. Thus, on April 1, 201?, Scenic View loaned US$600,000 to RSV to purchase new equipment, and retire RFV's long term debt. Interest expense on RFV's income statement contains US$15,0-00 of interest paid to Scenic View on the loan. RFV purchased new equipment on April 30, 2017 with an estimated useful life of 12 years for US$930,000. In early summer, RFV found a buyer for some of the old equipment. The actual sale took place on June 1, where RF'v' received US$60,000 for equipment that had a cost of US$436,000, and a net book value of US$BT,200. Scenic View was anxious to get their product to the American consumer. During 1201?, Scenic View sold US$2,200,000 of their wine to RFV to sell in the United States. Of this, US$425,000 is still being held in RFV's inventory at the year end. Scenic View sells to RFV at a 30% gross prot percentage. The inventory was purchase evenly throughout the year. RFV's ending inventory was purchased when the exchange rate was U51 =1 .28 RFV is staffed with employees who live in the Willamette Valley, consequently, with the exception of the management fee paid to Scenic View, the labour is paid for in US dollars