The financial statements of Malkin Inc., of Russia, as at December 31, Year 11, follow the Additional Information section.
Additional Information
€¢ On January 1, Year 11, Crichton Corporation of Toronto acquired a controlling interest in Malkin.
€¢ Relevant exchange rates for the Russian ruble (RR) were as follows:
Jan. 1, Year 11 ..... $1 = RR28.00
Dec. 31, Year 11 ..... $1 = RR28.20
Average for Year 11 ..... $1 = RR28.09
€¢ The land and buildings were purchased in Year 5 when the exchange rate was RR26.50.
€¢ During Year 11, equipment costing RR 125,000 was purchased for cash. Depreciation totaling RR 25,000 has been recorded on this equipment. The exchange rate on the date of the equipment purchase was RR28.18.
The remaining equipment was purchased on the date the subsidiary was acquired, and no other changes have taken place since that date. Depreciation on the buildings of RR105,00 and depreciation of RR63,000 on all the equipment are included in other expenses.
€¢ The December 31, Year 11, inventory was acquired during the last quarter of the year, when the average exchange rate was RR28.04.
€¢ On January 1, Year 11, the inventory was RR525,000 and was acquired when the average exchange rate was RR28.27.
€¢ The bonds mature on December 31, Year 16.
€¢ Other operating expenses were incurred equally throughout the year.
€¢ Dividends were declared and paid on December 31, Year 11.
€¢ On January 1, Year 11, liabilities were greater than monetary assets by the amount of RR1,033,000.
€¢ The common shares were issued in Year 1 when the exchange rate was RR25.00.

Accounts payable ....... RR 210,000
Miscellaneous payables .... 105,000
Bonds payable ........... 600,000
Common shares ....... 850,000
Retained earnings ....... 650,000
RR 2,415,000
RETAINED EARNINGS STATEMENT
Balance, January 1 ......... RR 470,000
Net income ........... 630,000
1,100,000
Dividends ............. 450,000
Balance, December 31 ..... RR 650,000
INCOME STATEMENT
Sales ............... RR 3,150,000
Cost of sales ........... 1,680,000
Other expenses .......... 840,000
2,520,000
Net Income ............ RR 630,000
Required:
(a) Assume that Malkin€™s functional currency is the Canadian dollar. Translate the financial statements into Canadian dollars for consolidation purposes.
(b) Assume that Malkin€™s functional currency is the Russian ruble. Translate the balance sheet only into Canadian dollars for consolidation purposes.
(c) Explain whether the current rate method produces results that are consistent with the normal measurement and valuation of assets and liabilities for domestic transactions and operations.

Transcribed Image Text:

FINANCIAL STATEMENTS at December 31, Year 11 BALANCE SHEET Cash Accounts receivable Inventories-at cost Land Buildings Accumulated depreciation Equipment Accumulated depreciation RR 105,000 168,000 357,000 430,000 1,460,000 420,000 483,000 168,000 1,040,000 315,000 RR2,415,000