“Assignment 3

This assignment should be completed after Chapter 12. It contributes 10% toward your
final grade. Remember to show all your work as partial marks may be awarded.

Question 1 (15
marks)

On June 1, 2014, Fleming Co. sold goods to BFF Ltd.
for FC 200,000 and entered into a 90-day forward contract with a financial institution
to deliver FC 200,000. Fleming expects to collect payment from BFF in 90 days. Fleming
has a July 31 year-end.

Selected exchange rates are presented below:

Spot Rate Forward rate to August 30
June 1, 2014 FC1=
$1.5717 CAD FC1= $1.5702 CAD
July 31, 2014 FC1=
$1.5600 CAD FC1= $1.5594 CAD
August 30, 2014 FC1=
$1.5500 CAD

Required:

a)
Prepare dated journal entries for Fleming to
reflect the above transactions using the current method. Do not use hedge
accounting.

b)
Prepare dated journal entries for Fleming to
reflect the above transactions using the net method. Do not use hedge accounting.

c)
Explain how your journal entry on the settlement
date would change if the receivable was hedged.

Question 2 (55
marks)

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 Snazzys 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.

Snazzys financial statements for its first 2 years
of operations are presented below.

Snazzy Ltd.
Statement of
Financial Position
As of December 31
(in FC)

2016 2015
Assets:
Current
assets:
Cash $ 48.000 $ 256,000
Accounts
receivable 64,000 48,000
112,000 304,000
Noncurrent
assets:
Land 320,000 –
Equipment
960,000 960,000
Accumulated
amortization (192,000)
(96,000)
1,088,000 864,000
Total
assets $
1,200,000 $
1,168,000

Liabilities
and shareholders equity:
Current
liabilities:
Accounts
payable 16,000 32,000
Noncurrent
liabilities:
Loan
payable 320,000 320,000
336,000 352,000
Shareholders
equity:
Share
capital 800,000 800,000
Retained
earnings _64,000 _16,000
864,000 816,000
Total
liabilities and shareholders equity $
1,200,000 $
1,168,000

Snazzy Ltd.
Statement of
Comprehensive Income
For 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 Section
For the year ended
December 31
(in FC)
2016 2015

Retained
earnings, beginning of year $ 16,000 $ –
Net
income 128,000 64,000
Dividends
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 CAD
when the loan was
negotiated 1FC
= $2.40 CAD
when the land was
purchased 1FC
= $1.90 CAD
average during 2015 1FC
= $2.20 CAD
December 31, 2015 1FC
= $2.00 CAD
Average during 2016 1FC
= $1.70 CAD
December 31, 2016 1FC
= $1.50 CAD

Required:

a)
Assume that Snazzys functional currency is the
Canadian dollar.

i) Translate
Snazzys 2015 financial statements using the appropriate method.
ii) Independently
calculate the translation gain/loss.
iii) Repeat
(i) and (ii) for 2016.

b)
Assume that Snazzys functional currency is the FC.

i) Translate
Snazzys 2015 financial statements using the appropriate method.
ii) Independently
calculate the translation gain/loss.
iii) Repeat
(i) and (ii) for 2016.

Question 3 (15
marks)

Prints Galore Ltd., a Canadian company, acquired
100% of Sculptures Ltd. for FC 300,000 on January 1, 2014. Prints Galores functional currency is the
Canadian dollar and Sculptures functional currency is the FC. Selected
exchange rates are presented below:

January
1, 2014 FC1 = $1.6993 CAD
December
31, 2015 FC1 = $1.7182
CAD
December
31, 2016 FC1 = $1.7233
CAD

Assume that the average rate for 2014, 2015, and
2016 is FC 1 = $1.7201 CAD.

Required:

a)
At the time of acquisition, the fair value of
Sculptures net assets was FC 200,000. There has been no impairment of goodwill.

i) Calculate
the amount of goodwill that should be presented on Prints Galores December 31,
2016 consolidated statement of financial position.

ii) Calculate
the amount of exchange gain/loss, if any, that should be reported on Prints
Galores 2016 consolidated statement of income under other comprehensive
income.

b)
Assume that at the time of acquisition, the fair
value of Sculptures net assets is FC 300,000. All of the net assets equaled
their carrying value with the exception of some machinery which exceeded its
carrying value by FC 100,000. The machinery has a remaining useful life of 5
years. Both Prints and Sculpture use straight-line amortization.

i) At
the end of 2016, what amount, if any, of the acquisition differential should be
added to the net book value of the equipment?

ii) Calculate
the amortization expense, if any, related to the acquisition differential that should
be included in Prints consolidated statement of comprehensive income for 2016.

iii) Calculate
the ending balance of the cumulative exchange gain, cumulative OCI.

Question 4 (15
marks)

Senior Immigrants (SI) is an NFPO established a few
years ago to help senior immigrants learn English and integrate into Canadian
society. SI has some paid staff supported by a large group of volunteers. The organization
is funded by government grants and private donations. During the current year,
the following events occurred:

SI was awarded a $1,000,000 government grant. The
terms of the grant are:
–
$380,000 for the acquisition of four mini-buses
–
$120,000 for rent for the next 2 years
–
$500,000 for SIs operations and programs

In the
current year, SI received $750,000$380,000 for the mini-buses, $120,000 for
the rent, and $250,000 for its operations and programs. The remaining $250,000
will be released next year.

During the current year, SI paid actual rental
costs of $55,000.

A local car dealership that has made substantial donations
to SI in the past supplied the mini-buses and customized them to SIs
requirements. The customized vehicles have a fair value of $500,000, but the
car dealership sold the vehicles to SI for $425,000. SI took delivery of the
vehicles in the summer of the current year.

The vehicles are expected to have a 10-year useful
life. SIs policy is to take a full years of amortization in the year of
acquisition.

In the current year, SI paid salaries of $150,000. $25,000
of the salaries related to fundraising for endowments and the rest was related
to operations and SIs annual fundraising projects.

In the current year, SI paid $10,000 for a training
seminar for volunteers.

In the spring of the current year, SI held a
karaoke fundraiser that raised $50,000. SI incurred $21,000 in costs related to
this fundraiser. The funds raised have been designated by the donor for SIs
Canadian cooking program.

SIs participation in an annual local television
telethon resulted in pledges of $235,000. $169,000 had been collected by the
end of the current year.

On July 1 of the current year, SI received an
endowment of $250,000 from a refugee who became a successful business person in
Canada. The investment income from this endowment can be used by SI as it sees
fit. The funds were invested in bonds that have an annual yield of 3%.

Required:

Prepare the necessary journal entries for the current year using

a)
the deferral method

and

b)
the restricted fund method.

Be sure the account names you use clearly identify
the type of account or fund.Assignment 3This
assignment should be completed after Chapter 12. It contributes 10% toward your
final grade. Remember to show all your work as partial marks may be awarded.Question 1 (15
marks)On June 1, 2014, Fleming Co. sold goods to BFF Ltd.
for FC 200,000 and entered into a 90-day forward contract with a financial institution
to deliver FC 200,000. Fleming expects to collect payment from BFF in 90 days. Fleming
has a July 31 year-end.Selected exchange rates are presented below:

Spot Rate Forward rate to August 30June 1, 2014 FC1=
$1.5717 CAD FC1= $1.5702 CADJuly 31, 2014 FC1=
$1.5600 CAD FC1= $1.5594 CADAugust 30, 2014 FC1=
$1.5500 CADRequired:

a)
Prepare dated journal entries for Fleming to
reflect the above transactions using the current method. Do not use hedge
accounting.b)
Prepare dated journal entries for Fleming to
reflect the above transactions using the net method. Do not use hedge accounting.c)
Explain how your journal entry on the settlement
date would change if the receivable was hedged. Question 2 (55
marks)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 Snazzys 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.Snazzys 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 $
1,168,000

Liabilities
and shareholders equity:Current
liabilities:Accounts
payable 16,000 32,000Noncurrent
liabilities:Loan
payable 320,000 320,000 336,000 352,000Shareholders
equity:Share
capital 800,000 800,000Retained
earnings _64,000 _16,000 864,000 816,000Total
liabilities and shareholders equity $
1,200,000 $
1,168,000Snazzy 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 $ 64,000Snazzy Ltd.Statement of Changes
in Equity Retained Earnings SectionFor the year ended
December 31(in FC) 2016 2015Retained
earnings, beginning of year $ 16,000 $ -Net
income 128,000 64,000Dividends
declared (80,000) (48,000)Retained
earnings, end of year $ 64,000 $
16,000Selected exchange
rateswhen 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 CADRequired:a)
Assume that Snazzys functional currency is the
Canadian dollar.i) Translate
Snazzys 2015 financial statements using the appropriate method.ii) Independently
calculate the translation gain/loss.iii) Repeat
(i) and (ii) for 2016.b)
Assume that Snazzys functional currency is the FC.i) Translate
Snazzys 2015 financial statements using the appropriate method.ii) Independently
calculate the translation gain/loss.iii) Repeat
(i) and (ii) for 2016.Question 3 (15
marks)Prints Galore Ltd., a Canadian company, acquired
100% of Sculptures Ltd. for FC 300,000 on January 1, 2014. Prints Galores functional currency is the
Canadian dollar and Sculptures functional currency is the FC. Selected
exchange rates are presented below:

January
1, 2014 FC1 = $1.6993 CAD December
31, 2015 FC1 = $1.7182
CAD December
31, 2016 FC1 = $1.7233
CADAssume that the average rate for 2014, 2015, and
2016 is FC 1 = $1.7201 CAD.

Required:a)
At the time of acquisition, the fair value of
Sculptures net assets was FC 200,000. There has been no impairment of goodwill.i) Calculate
the amount of goodwill that should be presented on Prints Galores December 31,
2016 consolidated statement of financial position.

ii) Calculate
the amount of exchange gain/loss, if any, that should be reported on Prints
Galores 2016 consolidated statement of income under other comprehensive
income.

b)
Assume that at the time of acquisition, the fair
value of Sculptures net assets is FC 300,000. All of the net assets equaled
their carrying value with the exception of some machinery which exceeded its
carrying value by FC 100,000. The machinery has a remaining useful life of 5
years. Both Prints and Sculpture use straight-line amortization.i) At
the end of 2016, what amount, if any, of the acquisition differential should be
added to the net book value of the equipment?ii) Calculate
the amortization expense, if any, related to the acquisition differential that should
be included in Prints consolidated statement of comprehensive income for 2016.iii) Calculate
the ending balance of the cumulative exchange gain, cumulative OCI. Question 4 (15
marks)Senior Immigrants (SI) is an NFPO established a few
years ago to help senior immigrants learn English and integrate into Canadian
society. SI has some paid staff supported by a large group of volunteers. The organization
is funded by government grants and private donations. During the current year,
the following events occurred:
SI was awarded a $1,000,000 government grant. The
terms of the grant are:-
$380,000 for the acquisition of four mini-buses-
$120,000 for rent for the next 2 years-
$500,000 for SIs operations and programsIn the
current year, SI received $750,000$380,000 for the mini-buses, $120,000 for
the rent, and $250,000 for its operations and programs. The remaining $250,000
will be released next year.

During the current year, SI paid actual rental
costs of $55,000.

A local car dealership that has made substantial donations
to SI in the past supplied the mini-buses and customized them to SIs
requirements. The customized vehicles have a fair value of $500,000, but the
car dealership sold the vehicles to SI for $425,000. SI took delivery of the
vehicles in the summer of the current year.

The vehicles are expected to have a 10-year useful
life. SIs policy is to take a full years of amortization in the year of
acquisition.

In the current year, SI paid salaries of $150,000. $25,000
of the salaries related to fundraising for endowments and the rest was related
to operations and SIs annual fundraising projects.

In the current year, SI paid $10,000 for a training
seminar for volunteers.

In the spring of the current year, SI held a
karaoke fundraiser that raised $50,000. SI incurred $21,000 in costs related to
this fundraiser. The funds raised have been designated by the donor for SIs
Canadian cooking program.

SIs participation in an annual local television
telethon resulted in pledges of $235,000. $169,000 had been collected by the
end of the current year.

On July 1 of the current year, SI received an
endowment of $250,000 from a refugee who became a successful business person in
Canada. The investment income from this endowment can be used by SI as it sees
fit. The funds were invested in bonds that have an annual yield of 3%.Required:

Prepare the necessary journal entries for the current year using a)
the deferral method andb)
the restricted fund method.Be sure the account names you use clearly identify
the type of account or fund.”