# Question: In preparation for translating the financial statements of a foreign

In preparation for translating the financial statements of a foreign subsidiary that is highly integrated with its Canadian parent, you have the following information:
FC
Inventory (FIFO cost, net realizable value of FC 1,300,000) ... 1,150,000
An examination of the working papers of the foreign subsidiary’s auditor shows the following information:
Opening inventory ........ FC 350,000
Purchases
February 15, Year 3 ........ 205,000
April 15, Year 3 ........ 588,000
August 1, Year 3 ........ 410,000
October 12, Year 3 ........ 362,000
November 15, Year 3 ........ 547,000
Cost of goods sold for the year .... 1,312,000
Exchange rates:
January 1, Year 3 (opening inventory) .... \$1 = FC2.5
February 15, Year 3 ........... \$1 = FC3.1
April 15, Year 3 ........... \$1 = FC3.4
August 1, Year 3 ........... \$1 = FC4.3
October 12, Year 3 ........... \$1 = FC4.8
November 15, Year 3 ........... \$1 = FC5.5
December 31, Year 3 ........... \$1 = FC6.1
Year 3 average ........... \$1 = FC4.0
Required:
(a) Calculate the Canadian-dollar amount of the inventory at the fiscal year-end (December 31), and the Canadian-dollar amount of any item(s) that would appear on the income statement.
(b) If the foreign subsidiary were self-sustaining, what would your answer to Part (a) be?
(c) Define accounting exposure and describe its impact on the translation of financial statement items in this problem.

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