QUESTION & ANSWER

Question & Answer



Question & Answer

CMA Accelerated Program - Winter 2012 - Week 10 Quiz

Use the following information to answer questions 7, 8 and 9

Punch Corp. acquired 100% of the outstanding common shares of Slip Inc. January 1, 2009. The

financial statements expressed in the foreign currency (FC) of Slip Inc. for the years ended December 31, 2010 and 2011 are presented below:

Statement of Financial Position2011 2010

Assets

Cash FC 832,000 FC 724,800

Accounts receivable 624,900 399,100

Fair value through profit and loss investments 300,120 275,700

Inventories (at cost) 905,860 815,400

Depreciable assets - net 1,533,800 2,143,800

FC4,196,680 FC 4,358,800

Liabilities

Current liabilities FC 395,680 FC 416,200

Bonds payable 1,960,000 2,500,000

Common shares 600,000 600,000

Retained earnings 1,241,000 842,600

FC4,196,680 FC 4,358,800

Income Statement and Statement of Retained Earnings for the year ending December 31, 2011

Sales FC3,000,000

Interest income on short term investments 28,000 FC3,028,000

Cost of goods sold 1,624,600

Depreciation expense 320,000

Interest and other expenses 125,700

Gain on sale of asset

Income tax expense

(60,000)

319,300

2,329,600

Net Income 698,400

Retained Earnings, beginning of year 842,600

Dividends declared and paid 300,000

Retained Earnings, end of year FC 1,241,000

Additional Information -

Fair value through profit and loss investments acquired June 30, 2011. The investments were re-measured to fair value at this time and at December 31, 2011 with no significant adjustment to profit and loss.

• Inventory was purchased as follows:

o Beginning inventory was purchased on October 30, 2010

o All other purchases occurred evenly throughout the year

o Ending inventory was purchased on September 30, 2011

• Depreciable assets having a net book value of FC 290,000 were sold on March 31, 2011 for a gain of $60,000; all other assets were purchased when the entity was formed January 1, 2008. Straight-line depreciation is used for all assets.

• The interest income, sales and other expenses occurred evenly throughout the year

• Dividends were declared in even amounts on June 30 th and December 31st and were paid July 31, 2011 and January 1, 2012.

• The exchange rates were as follows

January 1, 2008 FC1.6250 = $C1

January 1, 2009 FC1.6180 = $C1

October 30, 2010

December 31, 2010

FC1.5962 = $C1

FC1.5250 = $C1

March 31, 2011 FC1.4970 = $C1

June 30, 2011

July 31, 2011

FC1.5067 = $C1

FC1.5072 = $C1

September 30, 2011 FC1.5580 = $C1

December 31, 2011 FC1.5980 = $C1

Average for 2011

January 31, 2012

FC1.5400 = $C1

FC1.6010 = $C1

• Assume that Slip Inc.'s functional currency is the Canadian Dollar.

7. a. $2,628,897

b. $6,707,973

c. $2,707,674

d. $6,694,264

8. What is the Gain/loss on Monetary Items for 2011?

a. $1,025 gain

b. $1,234 loss

c. $15,884 gain

d. $18,719 gain

Based on this information what are the translated assets as December 31, 2011?

9. Based on the same information used in questions 7 and 8 but instead of the functional currency

being Canadian dollars, the functional currency is now assumed to be that of the foreign entity.

What would be the balance of the Cumulative Translation Account at December 31, 2011

(assume the balance of the CTA at December 31, 2010 is $120,000cr)?

a. $173,892 credit

b. $120,000 credit

c. $66,014 credit

d. $zero

10. Which of the following statements best describes a unique attribute of the Cumulative Translation

Account (CTA)?

a. When the functional currency is that of the reporting entity, the balance in this account will remain until the ...