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 PositionAs of December 31(in FC) 2016 2015Assets:Current assets:Cash $ 48.000 $ 256,000Accounts receivable 64,000 48,000 112,000 304,000Noncurrent assets:Land 320,000 -Equipment 960,000 960,000Accumulated amortization (192,000) (96,000) 1,088,000 864,000Total assets $ 1,200,000 $ 1,168,000Liabilities and shareholder’s equity:Current liabilities:Accounts payable 16,000 32,000Noncurrent liabilities:Loan payable 320,000 320,000 336,000 352,000Shareholder’s equity:Share capital 800,000 800,000Retained earnings _64,000 _16,000 864,000 816,000Total liabilities and shareholder’s equity $ 1,200,000 $ 1,168,000 Snazzy Ltd.Statement of Comprehensive IncomeFor 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 SectionFor the year ended December 31(in FC) 2016 2015 Retained earnings, beginning of year $ 16,000 $ -Net income 128,000 64,000Dividends 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 CADwhen the loan was negotiated 1FC = $2.40 CADwhen the land was purchased 1FC = $1.90 CADaverage during 2015 1FC = $2.20 CADDecember 31, 2015 1FC = $2.00 CADAverage during 2016 1FC = $1.70 CADDecember 31, 2016 1FC = $1.50 CAD Required: Assume that Snazzy’s functional currency is the Canadian dollar. Translate Snazzy’s 2015 financial statements using the appropriate method. Independently calculate the translation gain/loss. Repeat (i) and (ii) for 2016. Assume that Snazzy’s functional currency is the FC. Translate Snazzy’s 2015 financial statements using the appropriate method. Independently calculate the translation gain/loss. Repeat (i) and (ii) for 2016.1
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 ±nancial statements for its ±rst 2 years of operations are presented below.
ACCT451v12
Assignment 3
September 4, 2014
Answer