THOMPSON RIVERS UNIVERSITY,
OPEN LEARNING
ANSWER KEY
PRACTICE EXAMINATION
ACCT 4201 • ADVANCED
FINANCIAL ACCOUNTING
,ACCT 4201 • PRACTICE EXAM ANSWER KEY 2 OF 25
Question 1 (18 marks total)
On January 1, Year 5, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc.
(an American company) for $50,000 US. Assume that the functional currency of Martin is
the same as that of Larmer Corp. Therefore, Martin is an integrated foreign subsidiary.
Martin’s book values approximated its fair values on that date except for plant and
equipment, which had a fair market value of $30,000 US with a remaining life expectancy
of 5 years. A goodwill impairment loss of $1,000 US occurred during Year 5.
Martin’s January 1, Year 5 Balance Sheet is shown below (in US 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, 2020) 20,000
Common Stock 30,000
Retained Earnings 20,000
Total Liabilities and Equity $115,000
The following exchange rates were in effect during Year 5:
January 1, Year 5: $1U.S. = $1.3250 CDN
Average for Year 5: $1U.S. = $1.3350 CDN
Date when Inventory Purchased: $1U.S. = $1.3400 CDN
December 31, Year 5: $1U.S. = $1.3500 CDN
Dividends declared and paid December 31, Year 5
The December 31, Year 5, financial statements of Larmer (in Canadian dollars) and Martin
(in US dollars) are shown below:
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, ACCT 4201 • PRACTICE EXAM ANSWER KEY 3 OF 25
Balance Sheets Larmer Martin ($US)
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, Year 6) 35,000 20,000
Common Stock 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
Required:
a. Prepare a schedule to calculate the foreign exchange gain or loss to be reported by
Larmer on its Canadian dollar income statement for Year 5. (7 marks)
b. Translate Martin’s Year 5 Income Statement into Canadian dollars. (5 marks)
c. Translate Martin’s December 31, Year 5 Balance Sheet into Canadian dollars. (6 marks)
TRU Open Learning
OPEN LEARNING
ANSWER KEY
PRACTICE EXAMINATION
ACCT 4201 • ADVANCED
FINANCIAL ACCOUNTING
,ACCT 4201 • PRACTICE EXAM ANSWER KEY 2 OF 25
Question 1 (18 marks total)
On January 1, Year 5, Larmer Corp. (a Canadian company) purchased 80% of Martin Inc.
(an American company) for $50,000 US. Assume that the functional currency of Martin is
the same as that of Larmer Corp. Therefore, Martin is an integrated foreign subsidiary.
Martin’s book values approximated its fair values on that date except for plant and
equipment, which had a fair market value of $30,000 US with a remaining life expectancy
of 5 years. A goodwill impairment loss of $1,000 US occurred during Year 5.
Martin’s January 1, Year 5 Balance Sheet is shown below (in US 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, 2020) 20,000
Common Stock 30,000
Retained Earnings 20,000
Total Liabilities and Equity $115,000
The following exchange rates were in effect during Year 5:
January 1, Year 5: $1U.S. = $1.3250 CDN
Average for Year 5: $1U.S. = $1.3350 CDN
Date when Inventory Purchased: $1U.S. = $1.3400 CDN
December 31, Year 5: $1U.S. = $1.3500 CDN
Dividends declared and paid December 31, Year 5
The December 31, Year 5, financial statements of Larmer (in Canadian dollars) and Martin
(in US dollars) are shown below:
TRU Open Learning
, ACCT 4201 • PRACTICE EXAM ANSWER KEY 3 OF 25
Balance Sheets Larmer Martin ($US)
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, Year 6) 35,000 20,000
Common Stock 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
Required:
a. Prepare a schedule to calculate the foreign exchange gain or loss to be reported by
Larmer on its Canadian dollar income statement for Year 5. (7 marks)
b. Translate Martin’s Year 5 Income Statement into Canadian dollars. (5 marks)
c. Translate Martin’s December 31, Year 5 Balance Sheet into Canadian dollars. (6 marks)
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