Question

On January 1, 20X1, Par Company purchased all the outstanding stock of South Bay Company, located in Canada, for $121,500. On January 1, 20X1, the direct exchange rate for the Canadian dollar (C$) was C$1 = $0.81. South Bay’s book value on January 1, 20X1, was C$81,000. The fair value of South Bay’s plant and equipment was C$10,000 more than book value, and the plant and equipment are being depreciated over 10 years with no salvage value. The remainder of the differential is attributable to a trademark, which will be amortized over 10 years.

During 20X1, South Bay earned C$30,000 in income and declared and paid C$7,300 in dividends. The dividends were declared and paid in Canadian dollars when the exchange rate was C$1 = $0.75. On December 31, 20X1, Par continues to hold the Canadian currency received from the dividend. On December 31, 20X1, the direct exchange rate is C$1 = $0.64. The average exchange rate during 20X1 was C$1 = $0.76. Management has determined that the Canadian dollar is South Bay’s appropriate functional currency.

Required:
a. Prepare a schedule showing the differential allocation and amortization for 20X1. The schedule should present both Canadian dollars and U.S. dollars. (Amounts to be deducted should be entered with a minus sign. Round "Exchange Rate" answers to 2 decimal places and rest of answers to nearest whole dollar.)

On January 1, 20X1, Par Company purchased all the outstanding stock of South Bay Company, located in Canada, for $121,500. On January 1, 20X1, the direct exchange rate for the Canadian dollar (C$) was C$1 = $0.81. South Bay’s book value on January 1, 20X1, was C$81,000. The fair value of South Bay’s plant and equipment was C$10,000 more than book value, and the plant and equipment are being depreciated over 10 years with no salvage value. The remainder of the differential is attributable to a trademark, which will be amortized over 10 years.

	Canadian Dollars Exchange Rate U.S. Dollars Investment cost C Book value of investment on January 1, 20X1 Differential C

b. Par uses the fully adjusted equity method to account for its investment. Provide the entries that it would record in 20X1 for its investment in South Bay for the following items: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to nearest whole dollar.)

A	1	Investment in South Bay Company
B	2	Investment in South Bay Company
		Income from South Bay Company
C	3	Foreign currency units (C$)
		Investment in South Bay Company
D	4	Income from South Bay Company
		Investment in South Bay Company
E	5	Other comprehensive income – Translation adjustment
		Investment in South Bay Company

c. Prepare a schedule showing the proof of the translation adjustment for South Bay as a result of the translation of the subsidiary’s accounts from Canadian dollars to U.S. dollars. Then provide the entry that Par would record for its share of the translation adjustment resulting from the translation of the subsidiary’s accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Amounts to be deducted should be entered with a minus sign. Round "Exchange Rate" answers to 2 decimal places and rest of answers to nearest whole dollar.)

No	Event	General Journal	Debit	Credit
A	1	Other Comprehensive Income - Translation adjustment
		Investment in South Bay Company

d. Provide the entry required by Par to restate the C$7,300 in the Foreign Currency Units account into its year-end U.S. dollar–equivalent value. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to nearest whole dollar.)

No	Event	General Journal	Debit	Credit
A	1	Foreign currency transaction loss
		Foreign currency units (C$)

Answer 1

Anscwes DitHorential alloeakien& amoorigativnor apod Canadian dolbm Erchange ratc doflars Cct) La1500 Tvestment toaf 2) 500 150/000 0.81 Beok value nvertment 81000 x0.8 Op Jan, IO00 20X Q1999 c$ 69000 Dfforen hal ofateroant LOcome Bcharge xate Canpdian doflarvs Plant andtreatrmub dollans Plank ard guipment treatent cauipment toooo x0-8 ocoXo8/ Goc0-l000 Drffenential at date 10000 O8 4790 aaquisition 0649$=0013 59000 500 X0-7 -lccoxO 16 Amoertigation to the period Cto gears (0.000 c 1000cf 5900 O176 balance 000 Pemaining 4734043306 c53100

Canadion doflar diffountial Tn she above ,Tradermarbs in value of aseb bo0tkenn Balance heet CAAAA anadicus ceflays Plant & Cqui pmenh redcmanke Fxcharge ate doflans Plant equipmentrademanhs 53100 X0 64 On aa aotrana 9000 X0.64 0.64560 33984 53100 exchange 9000 ct al gean cnd oate Remaining balance 7340-5160 43306-33984 Diffenence 158032 adfoshment transtahicm fov erfrment Jutnal enb recomded in fn 2ouh Cormponyor dhe given Phems ay heOuona enty bollous.

NO DelsC)Coedit Panticulan Terfraent in outh by Company cash $I21500 21500 onany Scome ubdion nvetmeot South 2800 22800 (30000X 076 = 2ašoo Fogn Cuennts NOrfment in outh bay compan 5415 $545 54 75 300 KO 7S reome from beidony 5a44 Fove ment outh bay company/ 5a4H Amortigatien difHemotial : 760t 4Y84 = 5a4) Otho comprchasiveîncome translahion adjeafment 1090a 1090 Invetment in outh y Company 1580 t 9322

NO (4 a randlahin adforhrment tor Sooth bay oUul he anslaticn ofthe suboidiar i ts accovnt fom anadian dollan to os dollans Exchangt orate Counadian dofiars ( dollas (c Neds aus e the begin? 81000x0.8 81000 65610 ng he a i'|xi akets postion duringhe 30000x0 76 800 Neb ncome for dhe jca o.16 3000 O -5475 Dividend paid 1300 o75 Net aptranslahd at ratei dhosc ems 835 C$ 103700 etf ecla for (0300X0 6 O.64 0300 66368 change io othe compiehenaie 1636 frcome-thamlation adishrmcat duning the yean nebdeconcase Cdakit

Datc Concalit Pasti calas Debit Dec , 31, othen comprehensive fncome - trala1626 -ion adjerment Povesfment uth bay Company A9Es Jousina 7800 x Co.15-06) faveign renranvsation los 1300 X0 803 Pasticula Corcdit Debit C4 803 Fooreign Cuoeneytranation lar 803