On January 1, 20X1, Par Company purchased all the outstanding
stock of South Bay Company, located in Canada, for $105,300. On
January 1, 20X1, the direct exchange rate for the Canadian dollar
(C$) was C$1 = $0.81. South Bay’s book value on January 1, 20X1,
was C$87,000. The fair value of South Bay’s plant and equipment was
C$11,000 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$22,000 in income and declared and
paid C$8,200 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.)
canadian dollars exchange rate us dollars
investment cost
book value of an investment on January 1, 20x1
differential
Canadian dollars exchange rate us dolllars
Plant andn equipment trademark Plant and equipment trademark
income statement
differentital at date of acquisition
amortization this period (10 years)
remaining balance
balance sheet
remaining balance on 12/31/x1 translated at year end exchange rates
difference to OCI-translation adjustment
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.)
record the acquisition of south bay company
record the equity in income of the subsidiary
record the dividend from the foreign subsidiary
record the amortization of the differential
record the entry to recognize the translation adjustment on the differential
par company and subsidiary
proof of translation adjustment
year ended december 31 20x1
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.)
d. Provide the entry required by Par to restate the C$8,200 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.)
On January 1, 20X1, Par Company purchased all the outstanding stock of South Bay Company, located...
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...
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