In 2015, Corbus Co., a Canadian company, created a foreign subsidiary called Snazzy Ltd. by…

In 2015, Corbus Co., a Canadian company, created a foreign subsidiary called Snazzy Ltd. by…

In 2015, Corbus Co., a Canadian company, created a foreign subsidiary called Snazzy Ltd. by investing $2,000,000 CAD (800,000 FC) in return for all of Snazzy’s common shares. In preparing to start operations, Snazzy acquired equipment for 960,000 FC and took out a 320,000 FC loan. Snazzy is committed to repaying the loan in 3 years. In 2016, Snazzy acquired a tract of land for 320,000 FC. All dividends were paid on December 31 of the years in which they were declared.

Snazzy’s financial statements for its first 2 years of operations are presented below.

Snazzy Ltd.

Statement of Financial Position

As of December 31

(in FC)

2016 2015

Assets:

Current assets:

Cash $ 48.000 $ 256,000

Accounts receivable 64,000 48,000

112,000 304,000

Noncurrent assets:

Land 320,000 –

Equipment 960,000 960,000

Accumulated amortization (192,000) (96,000)

1,088,000 864,000

Total assets $ 1,200,000 $ 1,168,000

Liabilities and shareholder’s equity:

Current liabilities:

Accounts payable 16,000 32,000

Noncurrent liabilities:

Loan payable 320,000 320,000

336,000 352,000

Shareholder’s equity:

Share capital 800,000 800,000

Retained earnings _64,000 _16,000

864,000 816,000

Total liabilities and shareholder’s equity $ 1,200,000 $ 1,168,000

Snazzy Ltd.

Statement of Comprehensive Income

For the year ended December 31

(in FC)

2016 2015

Revenue $ 480,000 $ 352,000

Expenses:

Amortization 96,000 96,000

Interest 64,000 64,000

Other expenses 192,000 128,000

352,000 288,000

Net and comprehensive income $ 128,000 $ 64,000

Snazzy Ltd.

Statement of Changes in Equity – Retained Earnings Section

For the year ended December 31

(in FC)

2016 2015

Retained earnings, beginning of year $ 16,000 $ –

Net income 128,000 64,000

Dividends declared (80,000) (48,000)

Retained earnings, end of year $ 64,000 $ 16,000

Selected exchange rates

when the equipment was purchased 1FC = $2.30 CAD

when the loan was negotiated 1FC = $2.40 CAD

when the land was purchased 1FC = $1.90 CAD

average during 2015 1FC = $2.20 CAD

December 31, 2015 1FC = $2.00 CAD

Average during 2016 1FC = $1.70 CAD

December 31, 2016 1FC = $1.50 CAD

Required:

a) Assume that Snazzy’s functional currency is the Canadian dollar.

i) Translate Snazzy’s 2015 financial statements using the appropriate method.

ii) Independently calculate the translation gain/loss.

iii) Repeat (i) and (ii) for 2016.

b) Assume that Snazzy’s functional currency is the FC.

i) Translate Snazzy’s 2015 financial statements using the appropriate method.

ii) Independently calculate the translation gain/loss.

iii) Repeat (i) and (ii) for 2016.


In 2015, Corbus Co., a Canadian company, created a foreign subsidiary called Snazzy Ltd. by…

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