On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars): Current Monetary Assets $ 50 , 000 Inventory $ 40 , 000 Plant and Equipment $ 25 , 000 Total Assets $ 115 , 000 Current Liabilities $ 45 , 000 Bonds Payable (maturity: January 1,2026) $ 20 , 000 Common Shares $ 30 , 000 Retained Earnings $ 20 , 000 Total Liabilities and Equity $ 115 , 000 \begin{array}{|l|r|}\hline ext { Current Monetary Assets } & \$ 50,000 \\hline ext { Inventory } & \$ 40,000 \\hline ext { Plant and Equipment } & \$ 25,000 \\hline ext { Total Assets } & \$ 115,000 \\hline ext { Current Liabilities } & \$ 45,000 \\hline ext { Bonds Payable (maturity: January 1,2026) } & \$ 20,000 \\hline ext { Common Shares } & \$ 30,000 \\hline ext { Retained Earnings } & \$ 20,000 \\hline ext { Total Liabilities and Equity } & \$ 115,000\\hline\end{array} Current Monetary Assets Inventory Plant and Equipment Total Assets Current Liabilities Bonds Payable (maturity: January 1,2026) Common Shares Retained Earnings Total Liabilities and Equity $50 , 000 $40 , 000 $25 , 000 $115 , 000 $45 , 000 $20 , 000 $30 , 000 $20 , 000 $115 , 000 The following exchange rates were in effect during 2020: Aaruary 1 , 2020 : US $ 1 = CDN $ 1.3250 Average for 2020: US $ 1 = CDN $ 1.3350 Date when Ending Irventory Purchased: US $ 1 = CDN $ 1.34 Decernber 31 , 2020 : US $ 1 = CDN $ 1.35 \begin{array} { | l | r | } \hline ext { Aaruary } 1,2020 : & ext { US } \$ 1 = ext { CDN } \$ 1.3250 \\hline ext { Average for 2020: } & ext { US } \$ 1 = ext { CDN } \$ 1.3350 \\hline ext { Date when Ending Irventory Purchased: } & ext { US } \$ 1 = ext { CDN } \$ 1.34 \\hline ext { Decernber } 31,2020 : & ext { US } \$ 1 = ext { CDN } \$ 1.35 \\hline\end{array} Aaruary 1 , 2020 : Average for 2020: Date when Ending Irventory Purchased: Decernber 31 , 2020 : US $1 = CDN $1.3250 US $1 = CDN $1.3350 US $1 = CDN $1.34 US $1 = CDN $1.35 Sales, purchases and other expenses occurred evenly throughout the year.Dividends declared and paid December 31, 2020.The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:Balance Sheets Larmer Martin Current Monetary Assets $ 42 , 050 $ 65 , 000 Inventory $ 60 , 000 $ 50 , 000 Plant and Equipment $ 23 , 500 $ 20 , 000 Investment in Martin (at Cost) $ 66 , 250 Assets $ 191 , 800 $ 135 , 000 Current Liabilities $ 50 , 000 $ 48 , 000 Bonds Payable (maturity: January 1,2026) $ 35 , 000 $ 20 , 000 Common Shares $ 60 , 000 $ 30 , 000 Retained Earnings $ 30 , 000 $ 20 , 000 Net Income $ 28 , 800 $ 27 , 000 Dividends ( $ 12 , 000 ) ( $ 10 , 000 ) Liabilities and Equity $ 191 , 800 $ 135 , 000 Income Statements Larmer Martin Sales $ 80 , 000 $ 50 , 000 Dividend Income $ 10 , 800 Cost of Sales ( $ 40 , 000 ) ( $ 15 , 000 ) Depreciation ( $ 10 , 000 ) ( $ 5 , 000 ) Other expenses ( $ 12 , 000 ) ( $ 3 , 000 ) Net Income $ 28 , 800 $ 27 , 000 \begin{array}{|l|r|r|} \hline & ext { Larmer } & ext { Martin } \\hline ext { Current Monetary Assets } & \$ 42,050 & \$ 65,000 \\hline ext { Inventory } & \$ 60,000 & \$ 50,000 \\hline ext { Plant and Equipment } & \$ 23,500 & \$ 20,000 \\hline ext { Investment in Martin (at Cost) } & \$ 66,250 \\hline ext { Assets } & \$ 191,800 & \$ 135,000 \\hline ext { Current Liabilities } & \$ 50,000 & \$ 48,000 \\hline ext { Bonds Payable (maturity: January 1,2026) } & \$ 35,000 & \$ 20,000 \\hline ext { Common Shares } & \$ 60,000 & \$ 30,000 \\hline ext { Retained Earnings } & \$ 30,000 & \$ 20,000 \ ext { Net Income } & \$ 28,800 & \$ 27,000 \\hline ext { Dividends } & (\$ 12,000) & (\$ 10,000) \\hline ext { Liabilities and Equity } & \$ 191,800 & \$ 135,000 \\hline ext { Income Statements } & ext { Larmer } & ext { Martin } \\hline ext { Sales } & \$ 80,000 & \$ 50,000 \\hline ext { Dividend Income } & \$ 10,800 & \\hline ext { Cost of Sales } & (\$ 40,000) & (\$ 15,000) \\hline ext { Depreciation } & (\$ 10,000) & (\$ 5,000) \\hline ext { Other expenses } & (\$ 12,000) & (\$ 3,000) \\hline ext { Net Income } & \$ 28,800 & \$ 27,000\\hline\end{array} Current Monetary Assets Inventory Plant and Equipment Investment in Martin (at Cost) Assets Current Liabilities Bonds Payable (maturity: January 1,2026) Common Shares Retained Earnings Net Income Dividends Liabilities and Equity Income Statements Sales Dividend Income Cost of Sales Depreciation Other expenses Net Income Larmer $42 , 050 $60 , 000 $23 , 500 $66 , 250 $191 , 800 $50 , 000 $35 , 000 $60 , 000 $30 , 000 $28 , 800 ( $12 , 000 ) $191 , 800 Larmer $80 , 000 $10 , 800 ( $40 , 000 ) ( $10 , 000 ) ( $12 , 000 ) $28 , 800 Martin $65 , 000 $50 , 000 $20 , 000 $135 , 000 $48 , 000 $20 , 000 $30 , 000 $20 , 000 $27 , 000 ( $10 , 000 ) $135 , 000 Martin $50 , 000 ( $15 , 000 ) ( $5 , 000 ) ( $3 , 000 ) $27 , 000 Compute Martin's exchange gain or loss for 2020 if Martin's functional currency was the Canadian dollar (i.e. the same functional currency as the parent).

Question

On January 1, 2020, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc, an American company, for US$50,000.Martin's book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Martin's January 1, 2020 Balance Sheet is shown below (in U.S. dollars):  Current Monetary Assets  $ 50 , 000  Inventory  $ 40 , 000  Plant and Equipment  $ 25 , 000  Total Assets  $ 115 , 000  Current Liabilities  $ 45 , 000  Bonds Payable (maturity: January 1,2026)  $ 20 , 000  Common Shares  $ 30 , 000  Retained Earnings  $ 20 , 000  Total Liabilities and Equity  $ 115 , 000 \begin{array}{|l|r|}\hline 	ext { Current Monetary Assets }  &  \$ 50,000 \\hline 	ext { Inventory }  &  \$ 40,000 \\hline 	ext { Plant and Equipment }  &  \$ 25,000 \\hline 	ext { Total Assets }  &  \$ 115,000 \\hline 	ext { Current Liabilities }  &  \$ 45,000 \\hline 	ext { Bonds Payable (maturity: January 1,2026) }  &  \$ 20,000 \\hline 	ext { Common Shares }  &  \$ 30,000 \\hline 	ext { Retained Earnings }  &  \$ 20,000 \\hline 	ext { Total Liabilities and Equity }  &  \$ 115,000\\hline\end{array}  Current Monetary Assets   Inventory   Plant and Equipment   Total Assets   Current Liabilities   Bonds Payable (maturity: January 1,2026)   Common Shares   Retained Earnings   Total Liabilities and Equity  ​ $50 , 000 $40 , 000 $25 , 000 $115 , 000 $45 , 000 $20 , 000 $30 , 000 $20 , 000 $115 , 000 ​ ​   The following exchange rates were in effect during 2020:  Aaruary  1 , 2020 :  US  $ 1 =  CDN  $ 1.3250  Average for 2020:   US  $ 1 =  CDN  $ 1.3350  Date when Ending Irventory Purchased:   US  $ 1 =  CDN  $ 1.34  Decernber  31 , 2020 :  US  $ 1 =  CDN  $ 1.35 \begin{array} { | l | r | } \hline 	ext { Aaruary } 1,2020 :  &  	ext { US } \$ 1 = 	ext { CDN } \$ 1.3250 \\hline 	ext { Average for 2020: }  &  	ext { US } \$ 1 = 	ext { CDN } \$ 1.3350 \\hline 	ext { Date when Ending Irventory Purchased: }  &  	ext { US } \$ 1 = 	ext { CDN } \$ 1.34 \\hline 	ext { Decernber } 31,2020 :  &  	ext { US } \$ 1 = 	ext { CDN } \$ 1.35 \\hline\end{array}  Aaruary  1 , 2020 :  Average for 2020:   Date when Ending Irventory Purchased:   Decernber  31 , 2020 : ​  US  $1 =  CDN  $1.3250  US  $1 =  CDN  $1.3350  US  $1 =  CDN  $1.34  US  $1 =  CDN  $1.35 ​ ​   Sales, purchases and other expenses occurred evenly throughout the year.Dividends declared and paid December 31, 2020.The financial statements of Larmer (in Canadian dollars) and Martin (in U.S. dollars) are shown below:Balance Sheets  Larmer   Martin   Current Monetary Assets  $ 42 , 050 $ 65 , 000  Inventory  $ 60 , 000 $ 50 , 000  Plant and Equipment  $ 23 , 500 $ 20 , 000  Investment in Martin (at Cost)  $ 66 , 250  Assets  $ 191 , 800 $ 135 , 000  Current Liabilities  $ 50 , 000 $ 48 , 000  Bonds Payable (maturity: January 1,2026)  $ 35 , 000 $ 20 , 000  Common Shares  $ 60 , 000 $ 30 , 000  Retained Earnings  $ 30 , 000 $ 20 , 000  Net Income  $ 28 , 800 $ 27 , 000  Dividends  ( $ 12 , 000 ) ( $ 10 , 000 )  Liabilities and Equity  $ 191 , 800 $ 135 , 000  Income Statements   Larmer   Martin   Sales  $ 80 , 000 $ 50 , 000  Dividend Income  $ 10 , 800  Cost of Sales  ( $ 40 , 000 ) ( $ 15 , 000 )  Depreciation  ( $ 10 , 000 ) ( $ 5 , 000 )  Other expenses  ( $ 12 , 000 ) ( $ 3 , 000 )  Net Income  $ 28 , 800 $ 27 , 000 \begin{array}{|l|r|r|} \hline &  	ext { Larmer }  &  	ext { Martin } \\hline 	ext { Current Monetary Assets }  &  \$ 42,050  &  \$ 65,000 \\hline 	ext { Inventory }  &  \$ 60,000  &  \$ 50,000 \\hline 	ext { Plant and Equipment }  &  \$ 23,500  &  \$ 20,000 \\hline 	ext { Investment in Martin (at Cost) }  &  \$ 66,250 \\hline 	ext { Assets }  &  \$ 191,800  &  \$ 135,000 \\hline 	ext { Current Liabilities }  &  \$ 50,000  &  \$ 48,000 \\hline 	ext { Bonds Payable (maturity: January 1,2026) }  &  \$ 35,000  &  \$ 20,000 \\hline 	ext { Common Shares }  &  \$ 60,000  &  \$ 30,000 \\hline 	ext { Retained Earnings }  &  \$ 30,000  &  \$ 20,000 \	ext { Net Income }  &  \$ 28,800  &  \$ 27,000 \\hline 	ext { Dividends }  &  (\$ 12,000)  &  (\$ 10,000) \\hline 	ext { Liabilities and Equity }  &  \$ 191,800  &  \$ 135,000 \\hline 	ext { Income Statements }  &  	ext { Larmer }  &  	ext { Martin } \\hline 	ext { Sales }  &  \$ 80,000  &  \$ 50,000 \\hline 	ext { Dividend Income }  &  \$ 10,800  &  \\hline 	ext { Cost of Sales }  &  (\$ 40,000)  &  (\$ 15,000) \\hline 	ext { Depreciation }  &  (\$ 10,000)  &  (\$ 5,000) \\hline 	ext { Other expenses }  &  (\$ 12,000)  &  (\$ 3,000) \\hline 	ext { Net Income }  &  \$ 28,800  &  \$ 27,000\\hline\end{array}  Current Monetary Assets   Inventory   Plant and Equipment   Investment in Martin (at Cost)   Assets   Current Liabilities   Bonds Payable (maturity: January 1,2026)   Common Shares   Retained Earnings   Net Income   Dividends   Liabilities and Equity   Income Statements   Sales   Dividend Income   Cost of Sales   Depreciation   Other expenses   Net Income  ​  Larmer  $42 , 050 $60 , 000 $23 , 500 $66 , 250 $191 , 800 $50 , 000 $35 , 000 $60 , 000 $30 , 000 $28 , 800 ( $12 , 000 ) $191 , 800  Larmer  $80 , 000 $10 , 800 ( $40 , 000 ) ( $10 , 000 ) ( $12 , 000 ) $28 , 800 ​  Martin  $65 , 000 $50 , 000 $20 , 000 $135 , 000 $48 , 000 $20 , 000 $30 , 000 $20 , 000 $27 , 000 ( $10 , 000 ) $135 , 000  Martin  $50 , 000 ( $15 , 000 ) ( $5 , 000 ) ( $3 , 000 ) $27 , 000 ​ ​   Compute Martin's exchange gain or loss for 2020 if Martin's functional currency was the Canadian dollar (i.e. the same functional currency as the parent).

salem abo loghod · Accepted Answer

Final Answer :  Calculation of 2020 Translation Adjustment (FCT Method)Current net monetary position  U.S. Dollars   CDN Dollars   Balance,  Tan ⁡ 1 , 2020 ( $ 50 , 000 − $ 45 , 000 − $ 20 , 000 ) ( $ 15 , 000 ) × 1.325 ( $ 19 , 875 )  Changes-2020   Sales  $ 50 , 000 × 1.335 $ 66 , 750  Purchases  ( $ 15 , 000 + $ 50 , 000 − $ 40 , 000 ) ( $ 25 , 000 ) × 1.33 $ ( $ 33 , 375 )  Other Expenses  ( $ 3 , 000 ) × 1.335 ( $ 4 , 005 )  Dividends  ( $ 10 , 000 ) × 1.35 ( $ 13 , 500 )  Calculated Monetary Position:  ( $ 4 , 005 )  Actual Position, Dec  31 , 2020 ( $ 65 , 000 − $ 48 , 000 − $ 20 , 000 ) ( $ 3 , 000 ) × 1.35 ( $ 4 , 050 )  Exchange Loss-2020  $ 45 \begin{array}{|l|r|r|r|}\hline  &  	ext { U.S. Dollars }  &   &  	ext { CDN Dollars } \\hline 	ext { Balance, } \operatorname{Tan} 1,2020  &   &   &  \\hline(\$ 50,000-\$ 45,000-\$ 20,000)  &  (\$ 15,000)  &  	imes 1.325  &  (\$ 19,875) \\hline 	ext { Changes-2020 }  &   &   &  \\hline	ext { Sales }  &  \$ 50,000  &  	imes 1.335  &  \$ 66,750 \\hline 	ext { Purchases }(\$ 15,000+\$ 50,000-\$ 40,000)  &  (\$ 25,000)  &  	imes 1.33 \$  &  (\$ 33,375) \\hline 	ext { Other Expenses }  &  (\$ 3,000)  &  	imes 1.335  &  (\$ 4,005) \\hline 	ext { Dividends }  &  (\$ 10,000)  &  	imes 1.35  &  (\$ 13,500) \\hline 	ext { Calculated Monetary Position: }  &   &   &  (\$ 4,005) \\hline 	ext { Actual Position, Dec } 31,2020  &   &   &  \\hline(\$ 65,000-\$ 48,000-\$ 20,000)  &  (\$ 3,000)  &  	imes 1.35  &  (\$ 4,050) \\hline 	ext { Exchange Loss-2020 }  &   &   &  \$ 45 \\hline\end{array}  Balance,  Tan 1 , 2020 ( $50 , 000 − $45 , 000 − $20 , 000 )  Changes-2020   Sales   Purchases  ( $15 , 000 + $50 , 000 − $40 , 000 )  Other Expenses   Dividends   Calculated Monetary Position:   Actual Position, Dec  31 , 2020 ( $65 , 000 − $48 , 000 − $20 , 000 )  Exchange Loss-2020  ​  U.S. Dollars  ( $15 , 000 ) $50 , 000 ( $25 , 000 ) ( $3 , 000 ) ( $10 , 000 ) ( $3 , 000 ) ​ × 1.325 × 1.335 × 1.33$ × 1.335 × 1.35 × 1.35 ​  CDN Dollars  ( $19 , 875 ) $66 , 750 ( $33 , 375 ) ( $4 , 005 ) ( $13 , 500 ) ( $4 , 005 ) ( $4 , 050 ) $45 ​ ​

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