Q1. What is an upstream sale? How it is different from downstream sale?
Q2. Assume Su Co. owns 100% of Sub Co. The following intercompany transactions occurred during the year:
A) Parent loaned $200 to sub. To keep things simple, assume that there is no interest revenue or interest expense associated with this loan.
B) Parent made a sale to Sub for $300 cash. The inventory had originally cost Parent $140. Sub then sold that same inventory to an outsider for $400.
C) Parent made a sale to Sub for $400 cash. The inventory had originally cost Parent $240. Sub has not yet sold that same inventory to an outsider.
Q3.Exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one countryâs currency in relation to another currency. You are required to explain the difference between indirect exchange rate and direct exchange rates.
Q4.Exchange rates change because of a number of economic factors affecting the supply of and demand for a nationâs currencyWhat type of economic factors affect currency exchange rates? Give an example of a change in an economic factor that results in a weakening of the local currency unit versus a foreign currency unit.
Q5.A U.S. Parent Company acquires â¬25,000 from its bank on January 1, 2014, for use in future purchases from German companies. The direct exchange rate is $1.20 = â¬1.The parent company prepares its financial statements on July 1,2014 and on that date the exchange rate was $1.10=â¬1.
Required: record entries for purchase of currency and adjusting entry for gain or loss on July 1, 2014.
Q1. What is an upstream sale? How it is different from downstream sale?
Q2. Assume Su Co. owns 100% of Sub Co. The following intercompany transactions occurred during the year:
A) Parent loaned $200 to sub. To keep things simple, assume that there is no interest revenue or interest expense associated with this loan.
B) Parent made a sale to Sub for $300 cash. The inventory had originally cost Parent $140. Sub then sold that same inventory to an outsider for $400.
C) Parent made a sale to Sub for $400 cash. The inventory had originally cost Parent $240. Sub has not yet sold that same inventory to an outsider.
Q3.Exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one countryâs currency in relation to another currency. You are required to explain the difference between indirect exchange rate and direct exchange rates.
Q4.Exchange rates change because of a number of economic factors affecting the supply of and demand for a nationâs currencyWhat type of economic factors affect currency exchange rates? Give an example of a change in an economic factor that results in a weakening of the local currency unit versus a foreign currency unit.
Q5.A U.S. Parent Company acquires â¬25,000 from its bank on January 1, 2014, for use in future purchases from German companies. The direct exchange rate is $1.20 = â¬1.The parent company prepares its financial statements on July 1,2014 and on that date the exchange rate was $1.10=â¬1.
Required: record entries for purchase of currency and adjusting entry for gain or loss on July 1, 2014.
Related questions
| Sendelbach Corporation is a U.S.âbased organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primarily in Canada, it engages in some transactions through a branch in Mexico. Therefore, the subsidiary maintains a ledger denominated in Mexican pesos (Ps) and a general ledger in Canadian dollars (C$). As of December 31, 2015, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows: |
| Main OperationâCanada | ||
| Debit | Credit | |
| Accounts payable | C$ 39,605 | |
| Accumulated depreciation | 41,000 | |
| Buildings and equipment | C$ 181,000 | |
| Cash | 40,000 | |
| Common stock | 64,000 | |
| Cost of goods sold | 217,000 | |
| Depreciation expense | 8,300 | |
| Dividends, 4/1/15 | 33,000 | |
| Gain on sale of equipment, 6/1/15 | 6,400 | |
| Inventory | 93,000 | |
| Notes payableâdue in 2018 | 83,000 | |
| Receivables | 82,000 | |
| Retained earnings, 1/1/15 | 149,590 | |
| Salary expense | 37,000 | |
| Sales | 326,000 | |
| Utility expense | 10,400 | |
| Branch operation | 7,895 | |
| Totals | C$ 709,595 | C$ 709,595 |
| Branch OperationâMexico | ||
| Debit | Credit | |
| Accounts payable | Ps 64,900 | |
| Accumulated depreciation | 39,900 | |
| Building and equipment | Ps 54,000 | |
| Cash | 66,000 | |
| Depreciation expense | 3,400 | |
| Inventory (beginningâincome statement) | 37,000 | |
| Inventory (endingâincome statement) | 35,000 | |
| Inventory (endingâbalance sheet) | 35,000 | |
| Purchases | 71,000 | |
| Receivables | 35,000 | |
| Salary expense | 10,400 | |
| Sales | 138,000 | |
| Main office | 34,000 | |
| Totals | Ps 311,800 | Ps 311,800 |
| Additional Information |
| ⢠| The Canadian subsidiaryâs functional currency is the Canadian dollar, and Sendelbachâs reporting currency is the U.S. dollar. The Canadian and Mexican operations are not viewed as separate accounting entities. |
| ⢠| The building and equipment used in the Mexican operation were acquired in 2005 when the currency exchange rate was C$0.22 = Ps 1. |
| ⢠| Purchases should be assumed as having been made evenly throughout the fiscal year. |
| ⢠| Beginning inventory was acquired evenly throughout 2014; ending inventory was acquired evenly throughout 2015. |
| ⢠| The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$7,895 on December 31, 2015. |
| ⢠| Currency exchange rates for 1 Ps applicable to the Mexican operation follow: |
| Weighted average, 2014 | C$ | 0.27 |
| January 1, 2015 | 0.29 | |
| Weighted average rate for 2015 | 0.31 | |
| December 31, 2015 | 0.32 | |
| ⢠| The December 31, 2014, consolidated balance sheet reported a cumulative translation adjustment with a $50,950 credit (positive) balance. |
| ⢠| The subsidiaryâs common stock was issued in 2004 when the exchange rate was $0.43 = C$1. |
| ⢠| The subsidiaryâs December 31, 2014, Retained Earnings balance was C$149,590.00, a figure that has been translated into US$71,043. |
| ⢠| The applicable currency exchange rates for 1 C$ for translation purposes are as follows: |
| January 1, 2015 | US$ | 0.70 |
| April 1, 2015 | 0.69 | |
| June 1, 2015 | 0.68 | |
| Weighted average rate for 2015 | 0.67 | |
| December 31, 2015 | 0.65 | |
| a. | Remeasure the Mexican operationâs figures into Canadian dollars. (Hint: Back into the beginning net monetary asset or liability position.) (Input all amounts as positive values.)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sendelbach Corporation is a U.S.-based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primarily in Canada, it engages in some transactions through a branch in Mexico. Therefore, the subsidiary maintains a ledger denominated in Mexican pesos (Ps) and a general ledger in Canadian dollars (C$). As of December 31, 2017, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows:
| Main OperationâCanada | |||||
| Debit | Credit | ||||
| Accounts payable | C$ | 41,555 | |||
| Accumulated depreciation | 42,000 | ||||
| Buildings and equipment | C$ | 182,000 | |||
| Cash | 41,000 | ||||
| Common stock | 65,000 | ||||
| Cost of goods sold | 218,000 | ||||
| Depreciation expense | 8,400 | ||||
| Dividends, 4/1/17 | 34,000 | ||||
| Gain on sale of equipment, 6/1/17 | 6,500 | ||||
| Inventory | 94,000 | ||||
| Notes payableâdue in 2020 | 84,000 | ||||
| Receivables | 83,000 | ||||
| Retained earnings, 1/1/17 | 150,590 | ||||
| Salary expense | 38,000 | ||||
| Sales | 327,000 | ||||
| Utility expense | 10,500 | ||||
| Branch operation | 7,745 | ||||
| Totals | C$ | 716,645 | C$ | 716,645 | |
| Branch OperationâMexico | |||||
| Debit | Credit | ||||
| Accounts payable | Ps | 67,500 | |||
| Accumulated depreciation | 40,000 | ||||
| Building and equipment | Ps | 55,000 | |||
| Cash | 66,500 | ||||
| Depreciation expense | 3,500 | ||||
| Inventory (beginningâincome statement) | 38,000 | ||||
| Inventory (endingâincome statement) | 35,500 | ||||
| Inventory (endingâbalance sheet) | 35,500 | ||||
| Purchases | 72,000 | ||||
| Receivables | 36,000 | ||||
| Salary expense | 10,500 | ||||
| Sales | 139,000 | ||||
| Main office | 35,000 | ||||
| Totals | Ps | 317,000 | Ps | 317,000 | |
Additional Information
The Canadian subsidiaryâs functional currency is the Canadian dollar, and Sendelbachâs reporting currency is the U.S. dollar. The Canadian and Mexican operations are not viewed as separate accounting entities.
The building and equipment used in the Mexican operation were acquired in 2007 when the currency exchange rate was C$0.21 = Ps 1.
Purchases of inventory were made evenly throughout the fiscal year.
Beginning inventory was acquired evenly throughout 2016; ending inventory was acquired evenly throughout 2017.
The Main Office account on the Mexican records should be considered an equity account. This balance was remeasured into C$7,745 on December 31, 2017.
Currency exchange rates for 1 Ps applicable to the Mexican operation follow:
| Weighted average, 2016 | C$ | 0.26 |
| January 1, 2017 | 0.28 | |
| Weighted average rate for 2017 | 0.30 | |
| December 31, 2017 | 0.31 | |
The December 31, 2016, consolidated balance sheet reported a cumulative translation adjustment with a $51,950 credit (positive) balance.
The subsidiaryâs common stock was issued in 2004 when the exchange rate was $0.44 = C$1.
The subsidiaryâs December 31, 2016, retained earnings balance was C$150,590, an amount that has been translated into U.S.$70,363.
The applicable currency exchange rates for 1 C$ for translation purposes are as follows:
| January 1, 2017 | US$ | 0.70 |
| April 1, 2017 | 0.69 | |
| June 1, 2017 | 0.68 | |
| Weighted average rate for 2017 | 0.67 | |
| December 31, 2017 | 0.65 | |
Remeasure the Mexican operationâs account balances into Canadian dollars. (Note: Back into the beginning net monetary asset or liability position.)
Prepare financial statements (income statement, statement of retained earnings, and balance sheet) for the Canadian subsidiary in its functional currency, Canadian dollars.
Translate the Canadian dollar functional currency financial statements into U.S. dollars so that Sendelbach can prepare consolidated financial statements.
Complete this question by entering your answers in the tabs below.
Show less
Req A
Remeasure the Mexican operationâs account balances into Canadian dollars. (Note: Back into the beginning net monetary asset or liability position.) (Input all amounts as positive values.)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
b. Prepare financial statements (income statement, statement of retained earnings, and balance sheet) for the Canadian subsidiary in its functional currency, Canadian dollars.
c. Translate the Canadian dollar functional currency financial statements into U.S. dollars so that Sendelbach can prepare consolidated financial statements.
(Round U.S. Dollar values to 2 decimal places. Amounts to be deducted and losses should be indicated with a minus sign.)
Show less
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
