Ahmed firm (Canadian) acquired 100% of the outstanding shares of the U.S Manar firm on December 31, Year 1,

 

Manar's comparative statement of financial position and Year 2 income statement is as follows:

 

STATEMENT OF FINANCIAL POSITION
At December 31
	Year 2			Year 1
Plant and equipment (net)	US$	6,670,000		US$	7,370,000
Inventory		5,770,000			6,370,000
Accounts receivable		6,170,000			4,770,000
Cash		850,000			970,000
	US$	19,460,000		US$	19,480,000
Ordinary shares	US$	5,070,000		US$	5,070,000
Retained earnings		7,550,000			7,070,000
Bonds payable—due Dec. 31, Year 6		4,870,000			4,870,000
Current liabilities		1,970,000			2,470,000
	US$	19,460,000		US$	19,480,000

 

INCOME STATEMENT
For the year ended December 31, Year 2
Sales	US$	37,000,000
Cost of purchases		28,860,000
Change in inventory		600,000
Depreciation expense		700,000
Other expenses		4,710,000
		34,870,000
Profit	US$	2,130,000

 

Additional Information

• Exchange rates

Dec. 31, Year 1	US$1	=	C$1.10
Sep. 30, Year 2	US$1	=	C$1.07
Dec. 31, Year 2	US$1	=	C$1.05
Average for Year 2	US$1	=	C$1.08

• Manar declared and paid dividends on September 30, Year 2.
• The inventories on hand on December 31, Year 2, were purchased when the exchange rate was US$1 = C$1.06.

 

Required:

(a) Assume that Manar's functional currency is the Canadian dollar:

 

(i) Calculate the Year 2 exchange gain (loss) that would result from the translation of Manar's financial statements(Temporal Method).

(Input all amounts as a positive value. Omit currency symbol in your response.)

 

 (Click to select)  Exchange gain  Exchange loss             C$ 

 

(ii) Remeasure the Year 2 financial statements into Canadian dollars(Temporal method).

(Round the values in the "Rate" column to 2 decimal places. Exchange gain, if any, should be entered as positive value, and Exchange loss, if any, should be entered with a minus sign. Input all other amounts as positive values. Omit currency symbol in your response.) 

Note that change in inventory is computed as (Ending inventory in year 1 minus Ending inventory in year 2).  In addition, the Cost of purchases represents the purchases done during year 2 only excluding beginning and ending inventory which is represented in change in inventory account. Use the suitable exchange rate in each year under the temporal method.

 

Income Statement-Year 2
	US$		Rate	C$
Sales	37,000,000	×
Cost of purchases	28,860,000	×
Change in inventory	600,000
Depreciation expense	700,000	×
Other expenses	4,710,000	×
(Click to select)  Exchange gain  Exchange loss
	34,870,000
(Click to select)  Profit  Loss	2,130,000

 

Retained Earnings Statement-Year 2
	US$		Rate	C$
Bal. Jan 1	7,070,000	×
Profit	2,130,000
	9,200,000
Dividends	1,650,000	×
Bal. Dec 31	7,550,000

 

Statement of Financial Position - December 31, Year 2
	US$		Rate	C$
Plant and equipment (net)	6,670,000	×
Inventory	5,770,000	×
Accounts receivable	6,170,000	×
Cash	850,000	×
	19,460,000
Ordinary shares	5,070,000	×
Retained earnings	7,550,000
Bonds payable	4,870,000	×
Current liabilities	1,970,000	×
	19,460,000

 

(b) Assume that Manar's functional currency is the U.S. dollar:

 

(i) Calculate the Year 2 exchange gain (loss) that would result from the translation of Manar's financial statements and would be reported in other comprehensive income(Current rate method).

(Input all amounts as a positive value. Omit currency symbol in your response.)

 

 (Click to select)  Exchange gain  Exchange loss             C$ 

 

(ii) Translate the Year 2 financial statements into Canadian dollars(Current rate method).

(Round the values in the "Rate" column to 2 decimal places. Other Comprehensive Loss amounts should be indicated with a minus sign. Input all other amounts as positive values. Omit currency symbol in your response.)

Answer rating: 100% (QA)

Answer Given below US Retained earningsDec31Year 1 70700... View the full answer