ACC 110 Chapter Notes - Chapter 2: Current Liability, Financial Statement, Income Statement
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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$). As of December 31, 2017, the subsidiary is preparing financial statements in anticipation of consolidation with the U.S. parent corporation. Both ledgers for the subsidiary are as follows:
Main Operation—Canada | |||||
Debit | Credit | ||||
Accounts payable | C$ | 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 payable—due 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 Operation—Mexico | |||||
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 (beginning—income statement) | 38,000 | ||||
Inventory (ending—income statement) | 35,500 | ||||
Inventory (ending—balance 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 subsidiary’s functional currency is the Canadian dollar, and Sendelbach’s 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 subsidiary’s common stock was issued in 2004 when the exchange rate was $0.44 = C$1.
The subsidiary’s 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 operation’s 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.
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Req A
Remeasure the Mexican operation’s account balances into Canadian dollars. (Note: Back into the beginning net monetary asset or liability position.) (Input all amounts as positive values.)
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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.)
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Before you begin this assignment, it will be helpful if you review
McDonald'sMcDonald's
Corporation
20152015
annual report
(https://www.sec.gov/Archives/edgar/data/63908/000006390816000103/mcd-12312015x10k.htm ).
McDonald'sMcDonald's
Corporation is the world's leading global food service retailer with more than 36,000 locations worldwide in more than 100 countries. The corporation operates and franchises
McDonald'sMcDonald's
restaurants, which serve menu items such as the Big Mac, Chicken McNuggets, and McFlurry desserts. In addition,
McDonald'sMcDonald's
also serves McCafe beverages and pastries.Read the requirements
LOADING...
.
Requirement 1. Where would
McDonald'sMcDonald's
Corporation report plant assets on its financial statements? How are plant assets reported and what is the value as of December 31,
20152015 ?
(Enter any amounts in millions, to the nearest tenth of a million, X.X, as shown in the financial statements.)
Plant assets are reported at | cost | on the | consolidated balance sheet. |
The gross value of plant assets at December 31, 2015 is $ | 37,692.4 | (in millions). |
Requirement 2. Does
McDonald'sMcDonald's
Corporation depreciate its plant assets? How do you know? What is the depreciation method used and the useful lives?
A.
No,
McDonald'sMcDonald's
Corporation does not depreciate its plant assets. We know this because there is no difference between the cost and net value of the plant assets as shown on the consolidated balance sheet. This is reasonable given that the company's only category of plant assets is land, which is not depreciated. As such, no depreciation method is in use.
B.
Yes,
McDonald'sMcDonald's
Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and an accumulated depreciation and amortization balance is shown on the consolidated balance sheet. The company use the straight-line method to depreciate assets with the following estimated useful lives: up to 40 years for buildings, the lesser of the useful lives of assets or lease terms for leasehold improvements, and three to 12 years for equipment.
C.
Yes,
McDonald'sMcDonald's
Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and an accumulated depreciation and amortization balance is shown on the consolidated balance sheet. The company use the double-declining-balance method to depreciate assets with the following estimated useful lives: up to 30 years for buildings, five to 10 years for leasehold improvements, and three to 12 years for furniture and equipment.
D.
Yes,
McDonald'sMcDonald's
Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and depreciation expense is reported on the consolidated statement of income. The company use the double-declining-balance method to depreciate assets with the following estimated useful lives: up to 40 years for buildings, the lesser of the useful lives of assets or lease terms for leasehold improvements, and three to 12 years for equipment.