Question

Please help with the chart at least.

On January 1, 20X1. Par Company purchased all the outstanding stock of South Bay Company, located in Canada, for $129,600. On he direct exchange rate for the Canadian dollar (C$) was C$1 = $0.81. South Bay's book value on January 1, 20X1. was C$81.000. The fair value of South Bay's plant and equipment was C$10.700 more than book value, and the plant and equipment are being depreciated over 10 years with no salvage value. The remainder of the differential is attributable to a trademark, which will be amortized over 10 years. During 20x1, South Bay earned C$15.000 in income and declared and paid C$7.300 in dividends. The dividends were declared and paid in Canadian dollars when the exchange rate was C$1 = $0.75. On December 31, 20X1. Par continues to hold the Canadian currency received from the dividend. On December 31, 20X1, the direct exchange rate is C$1 = $0.64. The average exchange rate during 20X1 was C$1 = $0.76. Management has determined that the Canadian dollar is South Bay's appropriate functional currency Required: a. Prepare a schedule showing the differential allocation and amortization for 20X1. The schedule should present both Canadian dollars and U.S. dollars. (Amounts to be deducted should be entered with a minus sign. Round "Exchange Rate" answers to 2 decimal places and rest of answers to nearest whole dollar.) Canadian Dollars Exchange Rate U.S. Dollars Investment cost Book value of investment on January 1, 20X1 Differential C30 Exchange Rate Canadian Dollars Plant and Trademark equipment U.S. Dollars Plant and Trademark equipment Income Statement: Differential at date of acquisition: Amortization this period: (10 years) Remaining balance: Balance Sheet: Remaining balance on 12/31/X1 translated at year-end exchange rates: Difference to OCE-translation adjustment: 0 CS 0S

Answer 1

Part A

		Canadian Dollars	Exchange rate	U.S. Dollars
Investment cost	C	160000	0.81	$129600
Book value of investment on January 1, 20X1		81000	0.81	65610
Differential	C	79000		63990

129600/0.81 = 160000

	Canadian Dollars	Exchange rate	U.S. Dollars
	Plant and equipment	Trademark		Plant and equipment	Trademark
Income statement:
Differential at date of acquisition:	10700	68300	0.81	8667	55323
Amortization this period (10 years)	(1070)	(6830)	0.76	(813)	(5191)
Remaining balance:	9630	61470		7854	50132
Balance sheet
Remaining balance on 12/31/x1 translated at year-end exchange rates:	9630	61470	0.64	6163	39341
Difference to OCI – translation adjustment:				1691	10791

Differential = investment cost – book value of investment = (129600/0.81) – 81000 = 160000-81000 = $79000

Trademark (Differential) = 79000-10700 = 58300

Part B

No.	General journal	Debit	Credit
A	Investment in south bay company	129600
	Cash		129600
	(to record the acquisition of South Bay company)
B	Investment in south bay company	11400
	Income from subsidiary (15000*0.76)		11400
	(to record the equity in income of the subsidiary)
C	Foreign currency units (C$)	5475
	Investment in south bay company (7300*0.75)		5475
	(to record the dividend from the foreign subsidiary)
D	Income from subsidiary (813+5191)	6004
	Investment in south bay company		6004
	(to record the amortization of differential)
E	Other comprehensive income – translation adjustment (1691+10791)	12482
	Investment in south bay company		12482
	(to record entry to recognize the translation adjustment on the differential)

Part C

PAR COMPANY AND SUBSIDIARY

Proof of Translation Adjustment

Year ended December 31, 20X1

	Canadian Dollars	Exchange rate	U.S. Dollars
Net assets at begginnig of year, 1/1/X1	81000	0.81	65610
Adjustments for changes in assets portion during year:
Net income for year	15000	0.76	11400
Dividends paid	(7300)	0.75	(5475)
Net assets transferred at rates in effect for those items			71535
Net assets at end of year	88700	0.64	56768
Change in other comprehensive income – translation adjustment during year – net decrease (debit)	14767

No.	General journal	Debit	Credit
A	Other comprehensive income – translation adjustment	14767
	Investment in south bay company		14767
	(to record parent’s share (100%) of the translation adjustment from the translation of the subsidiary accounts on December 31, 20X1)

Part D

No.	General journal	Debit	Credit
A	Foreign currency transaction loss (7300*(0.64-0.75))	803
	Foreign currency units (C$)		803
	(to record the exchange loss on foreign currency units hold on December 31, 20X1)