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$). As of December 31, 2020, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows:   Main Operation—Canada   Debit   Credit Accounts payable       C$ 57,410 Accumulated depreciation         49,000 Buildings and equipment C$ 189,000       Cash   48,000       Common stock         72,000 Cost of goods sold   225,000       Depreciation expense   9,100       Dividends, 4/1/20   41,000       Gain on sale of equipment, 6/1/20         7,200 Inventory   101,000       Notes payable—due in 2023         91,000 Receivables   90,000       Retained earnings, 1/1/20         157,590 Salary expense   45,000       Sales         334,000 Utility expense   11,200       Branch operation   8,900       Totals C$ 768,200   C$ 768,200       Branch Operation—Mexico   Debit   Credit Accounts payable       Ps 77,200 Accumulated depreciation         56,200 Building and equipment Ps 62,000       Cash   70,000       Depreciation expense   4,200       Inventory (beginning—income statement)   45,000       Inventory (ending—income statement)         39,000 Inventory (ending—balance sheet)   39,000       Purchases   79,000       Receivables   43,000       Salary expense   11,200       Sales         146,000 Main office         35,000 Totals Ps 353,400   Ps 353,400     Additional Information The Canadian subsidiary’s functional currency is the Canadian dollar, and Sendelbach’s 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 2010 when the currency exchange rate was C$0.23 = Ps 1. Purchases of inventory were made evenly throughout the fiscal year. Beginning inventory was acquired evenly throughout 2019; ending inventory was acquired evenly throughout 2020. The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$8,900 on December 31, 2020. Currency exchange rates for 1 Ps applicable to the Mexican operation follow:         Weighted average, 2019 C$ 0.28 January 1, 2020   0.30 Weighted average rate for 2020   0.32 December 31, 2020   0.33     The December 31, 2019, consolidated balance sheet reported a cumulative translation adjustment with a $58,950 credit (positive) balance. The subsidiary’s common stock was issued in 2007 when the exchange rate was $0.51 = C$1. The subsidiary’s December 31, 2019, retained earnings balance was C$157,590, an amount that has been translated into U.S.$65,043. The applicable currency exchange rates for 1 C$ for translation purposes are as follows:         January 1, 2020 US$ 0.70 April 1, 2020   0.69 June 1, 2020   0.68 Weighted average rate for 2020   0.67 December 31, 2020   0.65     Remeasure the Mexican operation’s account balances into Canadian dollars. (Note: Back into the beginning net monetary asset or liability position.) Prepare financial statements (income statement, statement of retained earnings, and balance sheet) for the Canadian subsidiary in its functional currency, Canadian dollars. Translate the Canadian dollar functional currency financial statements into U.S. dollars so that Sendelbach can prepare consolidated financial statements.

Financial Reporting, Financial Statement Analysis and Valuation
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ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
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Chapter8: Investing Activities
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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, 2020, 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$ 57,410
Accumulated depreciation         49,000
Buildings and equipment C$ 189,000      
Cash   48,000      
Common stock         72,000
Cost of goods sold   225,000      
Depreciation expense   9,100      
Dividends, 4/1/20   41,000      
Gain on sale of equipment, 6/1/20         7,200
Inventory   101,000      
Notes payable—due in 2023         91,000
Receivables   90,000      
Retained earnings, 1/1/20         157,590
Salary expense   45,000      
Sales         334,000
Utility expense   11,200      
Branch operation   8,900      
Totals C$ 768,200   C$ 768,200
 

 

 

Branch Operation—Mexico
  Debit   Credit
Accounts payable       Ps 77,200
Accumulated depreciation         56,200
Building and equipment Ps 62,000      
Cash   70,000      
Depreciation expense   4,200      
Inventory (beginning—income statement)   45,000      
Inventory (ending—income statement)         39,000
Inventory (ending—balance sheet)   39,000      
Purchases   79,000      
Receivables   43,000      
Salary expense   11,200      
Sales         146,000
Main office         35,000
Totals Ps 353,400   Ps 353,400
 

 

Additional Information

  • The Canadian subsidiary’s functional currency is the Canadian dollar, and Sendelbach’s 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 2010 when the currency exchange rate was C$0.23 = Ps 1.

  • Purchases of inventory were made evenly throughout the fiscal year.

  • Beginning inventory was acquired evenly throughout 2019; ending inventory was acquired evenly throughout 2020.

  • The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$8,900 on December 31, 2020.

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

 

     
Weighted average, 2019 C$ 0.28
January 1, 2020   0.30
Weighted average rate for 2020   0.32
December 31, 2020   0.33
 

 

  • The December 31, 2019, consolidated balance sheet reported a cumulative translation adjustment with a $58,950 credit (positive) balance.

  • The subsidiary’s common stock was issued in 2007 when the exchange rate was $0.51 = C$1.

  • The subsidiary’s December 31, 2019, retained earnings balance was C$157,590, an amount that has been translated into U.S.$65,043.

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

 

     
January 1, 2020 US$ 0.70
April 1, 2020   0.69
June 1, 2020   0.68
Weighted average rate for 2020   0.67
December 31, 2020   0.65
 

 

  1. Remeasure the Mexican operation’s account balances into Canadian dollars. (Note: Back into the beginning net monetary asset or liability position.)

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

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

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