# Question: Fran Co Corporation is a foreign subsidiary of Desk Company

Fran Co Corporation is a foreign subsidiary of Desk Company, a Canadian company. Fran Co was acquired on January 1, 20X6, and manufactures furniture for sale based on sales prices determined by worldwide competition. The chief financial officer of Fran Co emailed the following December 31, 20X7, financial statements, stated in Euros (€), to you, the CFO of Desk:
Franco Corporation
Statement of Financial Position


Franco Corporation
Statement of Comprehensive Income
Years ended December 31, 20X7 and 20X6


1. The following exchange rates were noted:
January 1, 20X1.................................................................................................. € 1 = C\$ 1.55
January 1, 20X6.................................................................................................. € 1 = C\$ 1.52
Average for October 1–December 31, 20X6...................................................... € 1 = C\$ 1.48
Average for 20X6................................................................................................ € 1 = C\$ 1.50
December 31, 20X6............................................................................................ € 1 = C\$ 1.45
July 1, 20X7........................................................................................................ € 1 = C\$ 1.44
Average for October 1–December 31, 20X7...................................................... € 1 = C\$ 1.43
November 1, 20X7.............................................................................................. € 1 = C\$ 1.41
Average for 20X7............................................................................................... € 1 = C\$ 1.42
December 31, 20X7............................................................................................ € 1 = C\$ 1.40
2. On January 1, 20X1, Fran Co acquired equipment for € 900,000 with an expected useful life of nine years. On July 1, 20X7, it acquired € 400,000 of new equipment with an expected useful life of eight years. Fran Co amortizes its equipment on a straight- line basis, calculated monthly.
3. Fran Co partly financed its acquisition of equipment on January 1, 20X1 by issuing € 400,000, 8-year, 5% bonds payable. Similarly, Fran Co financed its acquisition of equipment in 20X7 by issuing € 400,000 of common shares on July 1, 20X7.
4. Inventory on hand on December 31, 20X6 and December 31, 20X7 includes a significant amount of wood imported from western Canadian timber firms. It was purchased evenly over the last three months of 20X6 and 20X7.
5. Dividends of € 40,000 were declared and paid on November 1, 20X7. No dividends were paid in 20X6. 6. All other sales, purchases, and expenses occurred evenly each year.

Required
1. Should Fran Co’s financial statements be translated into Canadian dollars using the temporal method or the current- rate method? Provide two facts from the question to support your answer.
2. Disregard your response to part 1. Using the current-rate method, translate the following accounts from Fran Co’s 20X7 financial statements into Canadian dollars.
a) Accounts receivable
b) Inventory
c) Bonds payable
d) Common shares
e) Amortization expense
3. Disregard your responses to parts 1 and 2. Using the temporal method, translate the fol-lowing accounts into Canadian dollars at December 31, 20X7.
a) Accounts receivable
b) Bond interest expense
c) Accounts payable
d) Inventory
e) Amortization expense
f) Cost of goods sold
4. Using the temporal method, calculate the exchange gain or loss that would result from the translation of Fran Co’s 20X7 financialstatements.

Sales0
Views114