Question

On January 1, 20X1, Par Company purchased all the outstanding stock of North Bay Company, located in Canada, for $137,700. On January 1, 20X1, the direct exchange rate for the Canadian dollar (C$) was C$1 = $0.81. North Bay’s book value on January 1, 20X1, was C$94,000. The fair value of North Bay’s plant and equipment was C$9,200 more than book value, and the plant and equipment are being depreciated over 10 years with no salvage value. The remainder of the differential is attributable to a trademark, which will be amortized over 10 years.

During 20X1, North Bay earned C$16,000 in income and declared and paid C$7,700 in dividends. The dividends were declared and paid in Canadian dollars when the exchange rate was C$1 = $0.75. On December 31, 20X1, Par continues to hold the Canadian currency received from the dividend. On December 31, 20X1, the direct exchange rate is C$1 = $0.64. The average exchange rate during 20X1 was C$1 = $0.76. Management has determined that the Canadian dollar is North Bay’s appropriate functional currency.

Prepare a schedule showing the proof of the translation adjustment for North Bay as a result of the translation of the subsidiary’s accounts from Canadian dollars to U.S. dollars. Then provide the entry that Par would record for its share of the translation adjustment resulting from the translation of the subsidiary’s accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Amounts to be deducted should be entered with a minus sign. Round "Exchange Rate" answers to 2 decimal places and rest of answers to nearest whole dollar.)

PAR COMPANY AND SUBSIDIARY
Proof of Translation Adjustment
Year Ended December 31, 20X1
		Canadian Dollars	Exchange Rate	U.S. Dollars
Net assets at beginning of year, 1/1/X1	C
Adjustment for changes in assets position during year:
Net income for year
Dividends paid
Net assets translated at rates in effect for those items
Net assets at end of year	C
Change in other comprehensive income - translation adjustment during year - net decrease (debit)

Record the parent's share (100%) of the translation adjustment from the translation of the subsidiary's accounts on December 31, 20X1.

Answer 1

	Canadian Dollars	Exchange Rate	U.S. Dollars
Par Company and North Bay Company
Proof of Translation Adjustment
Year Ended December 31, 20X1
Net assets at beginning of year, 1/1/X1	$94,000.00	$0.81	$76,140.00
Adjustment for changes in assets position during year
Net income for year	$16,000.00	$0.76	$12,160.00
Dividends paid	-$7,700.00	$0.75	-$5,775.00
Net assets translated at rates in effect for those items (a)			$82,525.00
Net assets at end of year (b)	$1,02,300.00	$0.64	$65,472.00
Change in other comprehensive income — translation adjustment during year — net decrease (debit) (a-b)			$17,053.00
December 31, 20X1
Other Comprehensive Income — Translation Adjustment	$17,053.00
Investment in North Bay Company		$17,053.00