$2$:$48$ PM Sat Apr $5-39\backslash \%605$ Assignment.pdf Ouestion $\backslash (2\backslash$quad $\backslash )(\backslash (25\backslash \%\backslash ))$ Please use the following information to answer question $2.$ Consolidated Motors is a U$.$S$.-$based corporation that sells mechanical engines and components used by electric utilities. Its Canadian subsidiary, Consol$-$Can, operates solely in Canada. It was created on $31$ December $20$X$6$ and Consolidated Motors determined at that time that it should use the U$.$S$.$ dollar as its functional currency. Chief Financial Officer Monica Templeton was asked to explain to the Board of Directors how exchange rates affect the financial statements of both Consol$-$Can and the consolidated financial statements of Consolidated Motors. For the presentation, Templeton collects Consol$-$Can's balance sheets for the years ended $20$X$6$ and $20$X$7($Exhibit $1),$ as well as relevant exchange rate information $($Exhibit $2).\backslash$begin$\{$tabular$\}\{|$c$|$c$|$c$|\}\backslash$hline $\backslash$begin$\{$tabular$\}\{$l$\}$ Consol$-$Can Con $\backslash \backslash$ EXHIBIT $1$ Fiscal Years End $($Canadian $\backslash$$$,$ in $\backslash$end$\{$tabular$\}$ & $\backslash$multicolumn$\{2\}\{|$l$|\}\{$Consol$-$Can Condensed Balance Sheet Fiscal Years Ending $31$ December $($Canadian $\backslash$$$,$ in Millions$)\}\backslash \backslash \backslash$hline Account & $207$ & $206\backslash \backslash \backslash$hline Cash & $135$ & $167\backslash \backslash \backslash$hline Accounts receivable & $98$ & $-\backslash \backslash \backslash$hline Inventory & $77$ & $30\backslash \backslash \backslash$hline Fixed assets & $100$ & $100\backslash \backslash \backslash$hline Accumulated depreciation & $(10)$ & $-\backslash \backslash \backslash$hline Total assets & $400$ & $297\backslash \backslash \backslash$hline Accounts payable & $77$ & $-\backslash \backslash \backslash$hline Long$-$term debt & $175$ & $175\backslash \backslash \backslash$hline Common stock & $100$ & $100\backslash \backslash \backslash$hline Retained earnings & $48$ & $-\backslash \backslash \backslash$hline Total liabilities and shareholders' equity & $400$ & $275\backslash \backslash \backslash$hline $\backslash$end$\{$tabular$\}5$

U$.$S$.\backslash$$$/$Canadian $\backslash$$

Rate on $31$ December $20$x$6$

Average rate in $2070\mathrm{.}92$

Weighted average rate for inventory purchases $0\mathrm{.}92$

$\backslash$begin$\{$tabular$\}\{$ll$\}$

Rate on $31$ December $207$ & $0\mathrm{.}95\backslash \backslash$

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$\backslash$end$\{$tabular$\}$

Templeton explains that Consol$-$Can uses the FIFO inventory accounting method, and that purchases of $\backslash (\backslash$mathrm$\{$C$\}\backslash$$ $300\backslash )$ million and the sell$-$through of that inventory occurred evenly throughout $20$X$7.$ Her presentation includes reporting the translated amounts in U$.$S$.$ currency for each item, as well as associated translation$-$related gains and losses. The Board responds with several questions.

Question $1.$ Would there be a reason to change the functional currency to the Canadian dollar?

Question $2$:Would there be any translation effects for Consolidated Motors if the functional currency for Consol$-$Can were changed to the Canadian dollar?

Question $3$: Would a change in the functional currency have any impact on financial statement ratios for the parent company?

Question $4$: What would be the balance sheet exposure to translation effects if the functional currency were changed?

$1$a$)$ After translating Consol$-$Can's inventory and long$-$term debt into the parent currency $($US$\backslash$$$),$ what would be the amounts to be included on Consolidated Motor's financial statements at $31$ December $20$X$7?(10\backslash \%)$

$1$b$)$ After translating Consol$-$Can's $31$ December $20$X$7$ balance sheet into the parent currency, what is the translated value of retained earnings assuming no dividend payment throughout $20$X$7?(5\backslash \%)$

$1$c$)$ In response to the Board's first question, When should Templeton justify such a change? $(5\backslash \%)$

$1$d$)$ In response to the Board's fourth question, what would be the balance sheet exposure $($in Canadian Dollar$)?(5\backslash \%)$