Task 5: Foreign Currency

Sendelbach Corporation is a U.S.based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primarily in Canada, it engages in some transactions through a branch in Mexico. Therefore, the subsidiary maintains a ledger denominated in Mexican pesos (Ps) and a general ledger in Canadian dollars (C$). As of December 31, 2013, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows:

Main Operation--Canada
	Debit	Credit
Accounts payable		C$ 35,000
Accumulated depreciation		27,000
Buildings and equipment	C$167,000
Cash	26,000
Common stock		50,000
Cost of goods sold	203,000
Depreciation expense	8,000
Dividends paid, 4/1/13	28,000
Gain on sale of equipment, 6/1/13		5,000
Inventory	98,000
Notes payabledue in 2016		76,000
Receivables	68,000
Retained earnings, 1/1/13		135,530
Salary expense	26,000
Sales		312,000
Utility Expense	9,000
Branch Operation	7,530
Totals	C$640,530	C$640,530

Branch Operation--Mexico
	Debit	Credit
Accounts payable		PS 49,000
Accumulated depreciation		19,000
Buildings and equipment	Ps 40,000
Cash	59,000
Depreciation expense	2,000
Inventory (beginning income statement)	23,000
Inventory (ending income statement)		28,000
Inventory (ending balance sheet)	28,000
Purchases	68,000
Receivables	21,000
Salary Expense	9,000
Sales		124,000
Main office		30,000
Totals	Ps 250,000	Ps 250,000

Additional Information

The Canadian subsidiarys functional currency is the Canadian dollar, and Sendelbachs reporting currency is the U.S. dollar. The Canadian and Mexican operations are not viewed as separate accounting entities.

The building and equipment used in the Mexican operation were acquired in 2005 when the currency exchange rate was C$0.25 5 Ps 1.

Purchases should be assumed as having been made evenly throughout the fiscal year.

Beginning inventory was acquired evenly throughout 2012; ending inventory was acquired evenly throughout 2013.

The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$7,530 on December 31, 2013.

Currency exchange rates for 1 Ps applicable to the Mexican operation follow:

Weighted average, 2012	C$0.30
January 1, 2013	0.32
Weighted average rate for 2013	0.34
December 31, 2013	0.35

The December 31, 2012, consolidated balance sheet reported a cumulative translation adjustment with a $36,950 credit (positive) balance.

The subsidiarys common stock was issued in 2004 when the exchange rate was $0.45 5 C$1.

The subsidiarys December 31, 2012, Retained Earnings balance was C$135,530, a figure that has been translated into US$70,421.

The applicable currency exchange rates for 1 C$ for translation purposes are as follows:

January 1, 2013	US$0.70
April 1, 2013	0.69
June 1, 2013	0.68
Weighted average rate for 2013	0.67
December 31, 2013	0.65

b. Prepare financial statements (income statement, statement of retained earnings, and balance sheet) for the Canadian subsidiary in its functional currency.

c. Translate the Canadian dollar functional currency financial statements into U.S. dollars so that Sendelbach can prepare consolidated financial statements.