At the beginning of 2010 GAGA, an American Company purchased all of the stock of
ID: 2474340 • Letter: A
Question
At the beginning of 2010 GAGA, an American Company purchased all of the stock of Bieber Company a Canadian Company for $600,000 US dollars when the Canadian dollar was worth $1. At this time all the assets of Bieber had a book value equal to their market value and the owner’s equity of Bieber was $580,000.
Additional information about Bieber:
In 2011 Bieber bought equipment for 1,000,000 Canadian dollars when the Canadian dollar was worth $0.97.
In 2012 Bieber bought the land for 200,000 Canadian dollars when the Canadian dollar was worth $1.01.
On 12/31/2015 Bieber’s retained earnings in US dollars was $350,000
The average exchange rate in 2016 was 1 Canadian dollar = $0.91
The exchange rate on 12/31/2016 was 1 Canadian dollar = $0.95
The exchange rate on 8/1/2016 when Bieber paid a 10,000 Canadian dollar dividend was 1 Canadian dollar equals $0.97
INCOME STATEMENT for the year 2016
Prepared under US Gaap
GAGA (US $) BIEBER (Canadian $)
SALES 3,000,000 200,000
SALARY EXPENSE 400,000 50,000
DEPRECIATION EXP 1000000 100,000
INVESTMENT INC. 9700 0
INCOME 1,609,700 50000
BALANCE SHEET
GAGA BIEBER
CASH 11,000,000 630,000
A/R 5,000,000 200,000
EQUIPMENT 10,000,000 1,000,000
A/D EQUIPMENT 2,000,000 200,000
LAND 1,000,000 200,000
INVESTMENT IN BIEBER 600,000 0
TOTAL ASSETS 25,600,000 1,830,000
NOTE PAYABLE 5,000,000 800,000
COMMON STOCK 12,500,000 600,000
RETAINED EARNINGS 8,100,000 430,000
NOTE: GAGA USES THE INITIAL VALUE METHOD FOR ITS INVESTMENT IN BIEBER; HENCE THE INVESTMENT STAYS AT 600,000 AND INVESTMENT INCOME IS ONLY THE DIVIDEND OF BIEBER.
Using the information above answer the following questions
A) REMEASURE THE FINANCIAL STATEMENTS OF BIEBER INTO US DOLLARS USING THE TEMPORAL METHOD
B) PREPARE A CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT FOR GAGA WHEN BIEBER USED THE TEMPORAL METHOD…NOTE WORKSHEET ENTRIES
Explanation / Answer
The temporal method remeasures cash, receivables, and liabilities into U.S. dollars using the current exchange rate. Inventory, property and equipment, patents, and contributed capital accounts are remeasured at historical rates resulting in differences in total assets and liabilities plus equity which must be reconciled resulting in a remeasurement gain or loss. Remeasure the Bieber financial statements into US Dollar under Temporal Method Income statement Particulars Amount (Canadian Dollar) Conversion Date Conversion Rate Remeasure Amount ( US $ ) Sales 200000 Average Rate 0.91 182000 Salary Expenses 50000 Average Rate 0.91 45500 Depreciation Exp 100000 Average Rate 0.91 91000 Income 50000 Average Rate 0.91 45500 Balance Sheet Cash 630000 Current Exchange Rate 0.95 598500 A/R 200000 Current Exchange Rate 0.95 190000 Equipment 1000000 Historical Rate 0.97 970000 A/Dep on Equipment 200000 Historical Rate 0.97 -194000 Land 200000 Historical Rate 1.01 202000 Total Assets 1830000 1766500 Notes Payable 800000 Current Exchange Rate 0.95 760000 Common Stock 600000 Equity with Remeasure 1006500 Retained Earnings 430000 Gain or Loss Total Liabilities 1830000 1766500 Consolidated Income statement of GAGA and BIBER Particulars GAGA BIBER Total Sales 3000000 182000 3182000 Salary Expenses 400000 45500 445500 Depreciation Exp 1000000 91000 1091000 Investment Income 9700 9700 Income 1609700 45500 1655200 Consolidate Balance sheet as on 31st March 2016 Assets GAGA BIBER Total Cash 11000000 598500 11598500 A/R 5000000 190000 5190000 Equipment 10000000 970000 10970000 A/Dep on Equipment -2000000 -194000 -2194000 Land 1000000 202000 1202000 Investment In Bibber 600000 0 600000 Total Assets 25600000 1766500 27366500 Notes Payable 5000000 760000 5760000 Common Stock 12500000 1006500 13506500 Retained Earnings 8100000 8100000 Total Liabilities 25600000 1766500 27366500
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