Jelton, Inc., is a U.S. company that has some business operations in Canada. The Canadian operation exports most of its output to the U.S., but incurs most of its costs in Canadian dollars. The budgeted income statement for next year is shown below. Jelton wants to know the impact of three possible exchange rate scenarios for the Canadian dollar on its budgeted income statement (assume one Canadian dollar is equivalent to either $0.70, $0.80, or $0.90 in U.S. dollars).

Instructions
a. Complete the chart in the working papers related to Jelton€™s budgeted income statement in U.S. dollars:

b. Explain the impact of a stronger Canadian dollar on earnings beforetax.

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JELTON, INC. BUDGETED INCOME STATEMENT FOR THE PERIOD ENDING DECEMBER 31, 2011 U.S Canadian Sales Cost of goods sold . .$400.00 C 5 100.00 . . 100 Operating expenses Fixed . . . 30.00 40.00 . Variable Total Operating earnings Interest expenses. . Earnings before tax 70.00 0 $230.00 5.00 S225.00 C$(95) 10 С$(105) Additional Information Possible Exchange Rate $0.70 0.80 0.90 Projected U.S. Sales $395 400 405 CS $0.70 C$ = S0.80 CS 0.90 Sales 1) U.S 2) Canadian 3) Total Cost of goods sold 4) U.S 5) Canadian 6) Total Gross profit Operating expenses (8) U.S. fixed 7 $224.00 9) U.S. variable 10% of sales (10) Total (11) Operating earnings $148.55 Interest expenses (13) Canadian Earnings before tax (12) U.S 14) Total $146.65