On December 31, 2018, BUR Canada Inc. acquired 90% of the voting shares of DOE Limited for
Question:
On December 31, 2018, BUR Canada Inc. acquired 90% of the voting shares of DOE Limited for 690,000 US$. On the acquisition date, the fair values of all the identifiable assets and liabilities for DOE equaled their carrying values.
DOE’s main operations are located in the USA. It produces and sells fine California wine. Approximately 10% of DOE’s sales are in the USA, another 15% of sales are made to BUR, and the remainder of its goods are sold throughout the world. BUR acquired its interest in DOE to take advantage of DOE’s worldwide distribution network. As a result, approximately 80% of BUR’s worldwide sales are distributed through DOE’s distribution network. Most of DOE’s wine is produced in California, USA. DOE has generated sufficient cash flows from operating activities to financing its operating and investing activities.
The consolidated trial balance of DOE for the years ended December 31, 2021, and 2020 were as follows:
2021 (Amount in US$) | 2020 (Amount in US$) | ||
Accounts Receivable | US$ 207,000 | US$ 70,000 | |
Inventory | 266,000 | 215,000 | |
Building – at cost | 1,340,000 | 1,340,000 | |
Equipment – at cost | 460,000 | 360,000 | |
Cost of goods sold | 1,215,000 | 1,200,000 | |
Amortization expense | 145,000 | 125,000 | |
Other expenses | 471,000 | 475,000 | |
Dividends paid | 320,000 | 380,000 | |
Total Debits | US$ 4,424,000 | US$ 4,252,000 | |
Monetary liabilities | US$ 699,000 | US$ 682,000 | |
Common shares | 600,000 | 600,000 | |
Retained Earnings, beginning | 370,000 | 300,000 | |
Sales | 2,190,000 | 2,250,000 | |
Accumulated amortization | 565,000 | 420,000 | |
US$ 4,424,000 | US$ 4,252,000 |
Other information
- Sales, inventory purchases, and other expenses occurred evenly throughout the year.
- The ending inventory for each year was purchased evenly in the last quarter of the year.
- On January 1, 2021, equipment was purchased by DOE for US$100,000. It has been estimated useful life of 8 years and a salvage value of US$5,000. DOE uses the double-declining balance method to calculate amortization expenses. The other equipment and the building were acquired on January 1, 2018.
- The dividends were declared and paid on January 1, 2021.
- All the liabilities are monetary items.
- The exchange rates for the USD and the Canadian dollars were as follows:
January 1, 2018 CA$1 = US$ 0.50
December 31, 2018 CA$1 = US$0.60
December 31, 2020/January 1, 2021 CA$1 = US$0.70
Average for the 2020 4th quarter CA$1 = US$0.68
December 31, 2021 CA$1 = US$0.80
Average for 2021 CA$1 = US$0.76
Average for the 2021 4th quarter CA$1 = US$0.79
Required:
Prepare the translated income statement of DOE for the year ended December 31, 2021, including a detailed calculation of the foreign exchange gain or loss
Intermediate Accounting
ISBN: 978-0078025839
9th edition
Authors: J. David Spiceland, James Sepe , Mark Nelson , Wayne Thomas